EXHIBIT
2.1





Agreement
and Plan of Merger




among




PNM
Resources, Inc.,




PNM
Merger Sub LLC,




Continental
Energy Systems LLC,




and




Cap
Rock Holding Corporation









Dated:
January 12, 2008









TABLE OF
CONTENTS
 
  ARTICLE
I
  DEFINITIONS
  Section
      1.01.
              Definitions
              1Section
      1.02.
              Other
      Definitional and Interpretive Matters
              11Section
      1.03.
              Joint
      Negotiation and Preparation of Agreement
              12
  ARTICLE
II
  THE
MERGER
  Section
      2.01.
              The
      Merger
              12Section
      2.02.
              Closing
              12Section
      2.03.
              Effective
      Time
              12Section
      2.04.
              Effects
              13Section
      2.05.
              Governing
      Documents
              13Section
      2.06.
              Additional
      Action
              13
  ARTICLE
III
  PURCHASE
PRICE
  Section
      3.01.
              Purchase
      Price
              13Section
      3.02.
              Determination
      of Adjustment Amount
              14Section
      3.03.
              Dissent
      Adjustment
              15Section
      3.04.
              Withholding
      Rights
              15
  ARTICLE
IV
  EFFECT ON
THE CAPITAL STOCK OF THE CONSTITUENT ENTITIES; EXCHANGE OF
CERTIFICATES
  Section
      4.01.
              Effect
      on Capital Stock
              16Section
      4.02.
              Exchange
      of Certificates
              17
  ARTICLE
V
  REPRESENTATIONS
AND WARRANTIES OF CAP ROCK HOLDING LLC
  Section
      5.01.
              Organization;
      Qualification
              19Section
      5.02.
              Authority
      Relative to this Agreement
              19Section
      5.03.
              Consents
      and Approvals; No Violation
              19Section
      5.04.
              Pro
      Forma Balance Sheet
              19Section
      5.05.
              Fees
      and Commissions
              19
   i
 ARTICLE
VI
  REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
  Section
      6.01.
              Organization;
      Qualification
              20Section
      6.02.
              Authority
      Relative to this Agreement
              20Section
      6.03.
              Consents
      and Approvals; No Violation
              21Section
      6.04.
              Financial
      Information
              21Section
      6.05.
              Capital
      Stock, Corporate Information
              22Section
      6.06.
              Environmental
              23Section
      6.07.
              Labor
      Matters
              24Section
      6.08.
              ERISA;
      Benefit Plans
              25Section
      6.09.
              Certain
      Contracts and Arrangements
              28Section
      6.10.
              Legal
      Proceedings and Orders
              31Section
      6.11.
              Permits
              31Section
      6.12.
              Compliance
      with Laws
              32Section
      6.13.
              Insurance
              32Section
      6.14.
              Taxes.
              32Section
      6.15.
              Fees
      and Commissions
              34Section
      6.16.
              Intellectual
      Property
              34Section
      6.17.
              Inspections
              35Section
      6.18.
              Absence
      of Certain Changes or Events; Major Customers
              35Section
      6.19.
              Regulatory
      Compliance
              36Section
      6.20.
              Title
      to Properties
              36Section
      6.21.
              Sufficiency
      of Assets
              37Section
      6.22.
              Other
      Activities
              37Section
      6.23.
              Bankruptcy
              37Section
      6.24.
              Absence
      of Certain Payments
              37
  ARTICLE
VII
  REPRESENTATIONS
AND WARRANTIES OF PARENT AND SUB
  Section
      7.01.
              Organization,
      Qualification
              38Section
      7.02.
              Authority
      Relative to this Agreement
              38Section
      7.03.
              Consents
      and Approvals; No Violation
              38Section
      7.04.
              Parent’s
      Knowledge
              39Section
      7.05.
              Inspections
              39
  ARTICLE
VIII
  COVENANTS
OF THE PARTIES
  Section
      8.01.
                Conduct
      of Business
                40Section
      8.02.
                Access
      to Information
                42Section
      8.03.
                Expenses
                44Section
      8.04.
                Further
      Assurances
                44
  ii
 Section
      8.05.
                Public
      Statements
                45Section
      8.06.
                Consents
      and Approvals
                45Section
      8.07.
                Transfer
      Taxes
                46Section
      8.08.
                Company
      Stock Options
                46Section
      8.09.
                Company
      Stockholder Approval
                47Section
      8.10.
                Title
      Insurance, Surveys, Estoppel Certificates, and Non-Disturbance
      Agreements
                47Section
      8.11.
                Tax
      Matters
                47Section
      8.12.
                Minimum
      Net Worth/Disbursement Account
                51Section
      8.13.
                Supplements
      to Schedules
                52Section
      8.14.
                Eminent
      Domain; Casualty Loss.
                52Section
      8.15.
                Certain
      Cap Rock Employees
                52
 ARTICLE
IX
  CONDITIONS
TO CLOSING
  Section
      9.01.
              Conditions
      to Each Party’s Obligations to Effect the Closing
              53Section
      9.02.
              Conditions
      to Obligations of Parent
              53Section
      9.03.
              Conditions
      to Obligations of the Company
              56
  ARTICLE
X
  INDEMNIFICATION
  Section
      10.01.
              Survival
      of Representations and Warranties
              57Section
      10.02.
              Indemnification.
              57Section
      10.03.
              Indemnification
      Procedures.
              58Section
      10.04.
              Limitations
      on Indemnification.
              60Section
      10.05.
              Applicability
      of Article X
              62Section
      10.06.
              Tax
      Treatment of Indemnity Payments
              62Section
      10.07.
              No
      Consequential Damages
              62Section
      10.08.
              Exclusive
      Remedy
              63
  ARTICLE
XI
  TERMINATION
AND OTHER REMEDIES
  Section
      11.01.
              Termination
              63Section
      11.02.
              Procedure
      and Effect of Termination
              64Section
      11.03.
              Remedies
      upon Termination
              65
   iii
 ARTICLE
XII
  MISCELLANEOUS
PROVISIONS
  Section
      12.01.
              Amendment
      and Modification
              66Section
      12.02.
              Waiver
      of Compliance; Consents
              66Section
      12.03.
              Notices
              66Section
      12.04.
              Assignment
              67Section
      12.05.
              Governing
      Law
              67Section
      12.06.
              Severability
              68Section
      12.07.
              Entire
      Agreement
              68Section
      12.08.
              Delivery
              68Section
      12.09.
              Waiver
      of Jury Trial
              68
 
  iv


EXHIBITS
AND SCHEDULES




Exhibit1.01 -A
              Capital
      Expenditure BudgetExhibit
      1.01-B
              Company
      EmployeesExhibit3.01 (b)
              Balance
      Sheet Principles   Schedule
      1.01-A
              Material
      Business AgreementsSchedule
      1.01-B
              Parent
      Required Regulatory ApprovalsSchedule
      1.01-C
              Permitted
      EncumbrancesSchedule
      1.01-D
              The
      Company Required Regulatory ApprovalsSchedule
      1.01-E
              The
      Company’s KnowledgeSchedule
      1.01-F
              Owned
      Real PropertySchedule
      1.01-G
              Real
      Property LeasesSchedule
      1.01-H
              TerritorySchedule
      1.01-I
              Specified
      EmployeesSchedule
      1.01-J
              Specified
      AgreementsSchedule
      1.01-K
              Indemnified
      AgreementsSchedule
      7.03
              Required
      Consents or Approvals of Parent and
Sub


In
accordance with Item 601(b)(2) of Regulation S-K, PNM Resources agrees to
furnish supplementally a copy of any schedule to the Securities and Exchange
Commission upon request.






v





AGREEMENT
AND PLAN OF MERGER dated as of January 12, 2008, among PNM Resources, Inc., a
New Mexico corporation (“Parent”), PNM Merger
Sub LLC (“Sub”), a Delaware
limited liability company, Continental Energy Systems LLC (“CES”), a Delaware
limited liability company previously known as Cap Rock Holding, LLC, and Cap
Rock Holding Corporation (the “Company”), a Delaware
corporation.




WHEREAS
the respective Boards of Directors of Parent and the Company and the sole
manager of Sub have approved the merger (the “Merger”) of Sub into
the Company, on the terms and subject to the conditions set forth in this
Agreement, whereby each issued share of common stock, par value $0.01 per share,
of the Company (the “Company Common
Stock”) not owned by Parent, Sub or the Company shall be converted into
cash; and




WHEREAS
Parent, Sub and the Company desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger.




NOW
THEREFORE, the Parties hereto agree as follows:




ARTICLE
I




DEFINITIONS




SECTION
1.01.  Definitions.  (a)  As
used in this Agreement, the following terms have the meanings specified in this
Section
1.01:




“Adjustment Amount”
may be a positive or negative number, and will be determined in accordance with
Section
3.02.




“Affiliate” has the
meaning set forth in Rule 12b-2 of the General Rules and Regulations under the
Exchange Act.




“Asset Purchase
Agreement” means the Asset Purchase Agreement by and among Public Service
Company of New Mexico, a New Mexico corporation, Cap Rock Holding LLC, a
Delaware limited liability company, and New Mexico Gas Company, Inc., a Delaware
corporation, as amended from time to time.




“BCAT” means the
Business Corporation Act of the State of Texas.




“Business” means the
electric transmission and distribution utility business of the Cap Rock Entities
in the Territory,including
sales of electricity to residential, commercial and industrial
customers.




“Business Agreement”
means a Contract (other than the Franchises and the Real Property Leases to
which any Cap Rock Entity is a party or by which any Cap Rock Entity is
bound).




1




“Business Day” means
any day other than Saturday, Sunday, any day which is a legal holiday or any day
on which banking institutions in Albuquerque, New Mexico or New York, New York
are authorized by Law to close.




“Capital Expenditure
Budget” means the budget for capital expenditures for the Cap Rock
Entities for fiscal year 2008 attached hereto as Exhibit1.01-A.




“Cap Rock Energy”
means Cap Rock Energy Corporation, a Texas corporation.




“Cap Rock Entity”
means the Company, Cap Rock Energy, Cap Rock Intermediate or
NewCorp.




“Cap Rock Excluded
Matter” means any one or more of the following: (a) any change in
the international, national, regional or local markets or industries in which
any Cap Rock Entity operates or of which any Cap Rock Entity is a part that does
not disproportionately affect such Cap Rock Entity in any material respect as
compared to similarly situated companies in the industry in which such Cap Rock
Entity operates, (b) any change after the date of this Agreement in any Law
to the extent not disproportionately affecting such Cap Rock Entity in any
material respect (excluding from this clause (b) any change in any Law issued
by, administered by or relating to the authority or responsibilities of the
PUCT), (c) any change in accounting standards, principles or interpretations,
(d) announcement of this Agreement or the Transactions (including
disruption or loss of customers, suppliers or employee relationships to the
extent related to any announcement with respect to this Agreement or the
Transactions), (e) any general change in international, national, regional,
or local economic, financial markets, or political conditions, including
prevailing interest rates, that does not disproportionately affect any Cap Rock
Entity in any material respect as compared to similarly situated companies in
the industry in which such Cap Rock Entity operates, (f) weather conditions
or related customer use patterns, (g) any change in the market price of
commodities or publicly traded securities, (h) any change resulting from the
actions of Parent or Sub after the date of this Agreement, (i) war or
terrorism or (j) failure by the Cap Rock Entities to meet revenue or
earnings predictions related to the Business.




“Cap Rock
Intermediate” means Cap Rock Intermediate, Inc., a Delaware
corporation.




“Cap Rock Material Adverse
Effect” means a material adverse effect on (a) the business, assets,
properties, results of operations or financial condition of the Cap Rock
Entities, taken as a whole, other than an effect (i) resulting from a Cap Rock
Excluded Matter occurring after the date of this Agreement or (ii) cured
(including by payment of money or application of insurance proceeds) before the
Closing Date or (b) the ability of the Company to perform its obligations under
this Agreement.




“CERCLA” means the
Comprehensive Environmental Response Compensation, and Liability Act, as
amended.




2




“Claims” means any and
all administrative, regulatory, or judicial actions or causes of action, suits,
petitions, proceedings (including arbitration proceedings), investigations,
hearings, demands, demand letters, claims, or notices of noncompliance or
violation delivered by any Governmental Entity or other Person.




“Code”
means the Internal Revenue Code of 1986, as amended.




“Company Employees”
means the employees of each Cap Rock Entity set forth on Exhibit 1.01-B,
together with all other persons who are hired by any Cap Rock Entity to replace
any such employee.




“Company Required Regulatory
Approvals” means (i) the filings by CES and Parent required by the HSR
Act and the expiration or earlier termination of all waiting periods under the
HSR Act, and (ii) the approvals set forth on Schedule1.01-D.




“Company’s Knowledge”
or words to similar effect, means the knowledge of the Company and any other Cap
Rock Entity, based on the actual knowledge of the persons set forth in Schedule1.01-E.




“Confidentiality
Agreement” means the Confidentiality Agreement, dated October 27, 2007
between PNM Resources, Inc. and Cap Rock Holding Corporation.




“Contract” means any
contract, lease, sublease, commitment, indenture, agreement, understanding,
instrument or other legally binding agreement, whether oral or
written.




“Disbursement Account”
means the account under the Disbursing Agent Agreement between Cap Rock Holding
Corporation and Mellon Investor Services LLC dated as of May 11, 2006, as
amended or modified through the date hereof, in which cash is held pursuant to
the Share Exchange.




“Encumbrances” means
any and all mortgages, pledges, liens, claims, charges, security interests,
conditional and installment sale agreements, activity and use limitations,
leases and other occupancy agreements, options, easements, covenants,
encumbrances, obligations, limitations, title defects, deed restrictions, and
all other restrictions of any kind.




“Environment” means
all or any of the following media: soil, land surface and subsurface strata,
surface waters (including navigable waters, streams, ponds, drainage basins, and
wetlands), groundwater, drinking water supply, stream sediments, ambient air
(including the air within buildings and the air within other natural or man-made
structures above or below ground), plant and animal life, and any other natural
resource.




“Environmental Claims”
means any and all Claims (including any such Claims involving toxic torts or
similar liabilities in tort, whether based on negligence or other fault, strict
or absolute liability, or any other basis) relating in any way to any
Environmental Laws or Environmental Permits, or arising from the presence,
Release, or threatened Release (or alleged presence, Release, or threatened
Release) of any Hazardous Materials, including any and all Claims by any
Governmental Entity or by any Person for enforcement, cleanup, remediation,
removal, response, remedial or other actions or damages, contribution,
indemnification, cost recovery, compensation, injunctive relief, or property
damage or personal or bodily injury (including death) or threat of injury to
health, safety, cultural resources and historic properties, natural resources,
or the Environment pursuant to any Environmental Law.






3




“Environmental Laws”
means all Laws and Orders relating to pollution or the protection of human
health, safety, the Environment, or damage to natural resources, including Laws
relating to Releases and threatened Releases or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of Hazardous Materials.  Environmental Laws
include the Comprehensive Environmental Response, Compensation, and Liability
Act, 42 U.S.C. Section 9601 et seq.; the Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C. Section 136 et seq.; the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901, et seq.; the Toxic Substances Control Act,
15 U.S.C. Section 2601 et seq.; the Clean Air Act, 42 U.S.C. Section 7401 et
seq.; the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq.;
the Oil Pollution Act, 33 U.S.C. Section 2701 et seq.; the Endangered Species
Act, 16 U.S.C. Section 1531 et seq.; the National Environmental Policy Act, 42
U.S.C. Section 4321, et seq.; the National Historic Preservation Act, 16 U.S.C.
Section 110 et seq., the Occupational Safety and Health Act, 29 U.S.C. Section
651 et seq.  (to the extent relating to human exposure to Hazardous
Materials); the Safe Drinking Water Act, 42 U.S.C. Section 300f et seq.;
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Section 11001 et
seq.; Atomic Energy Act, 42 U.S.C. Section 2014 et seq.; Nuclear Waste Policy
Act, 42 U.S.C. Section 10101 et seq.; and their state, tribal and local
counterparts or equivalents, all as amended from time to time, and regulations
issued pursuant to any of those statutes.




“Environmental
Permits” means all permits, certifications, licenses, approvals,
consents, waivers, or other authorizations of Governmental Entities issued under
or with respect to applicable Environmental Laws and applicable to the Cap Rock
Entities.




“ERCOT” means the
Electric Reliability Council of Texas, Inc.




“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended.




“ERISA Affiliate”
means any Person that, together with the Company, would be considered a single
employer under Section 414(b), (c) or (m) of the Code.




“Exchange Act” means
the Securities Exchange Act of 1934, as amended.




“FCC”
means the Federal Communications Commission.




“FERC”
means the Federal Energy Regulatory Commission.






4




“Final Regulatory
Order” means, with respect to a Required Regulatory Approval, an Order
granting such Required Regulatory Approval that has not been revised, stayed,
enjoined, set aside, annulled, or suspended, and with respect to which (i) any
required waiting period has expired and (ii) all conditions to effectiveness
prescribed therein or otherwise by Law or Order have been
satisfied.




“Financial Hedge”
means a Contract consisting of a futures contract, options contract or other
derivatives transaction, in any case relating to electricity (but not including
contracts for physical delivery of such commodity).




“GAAP” means United
States generally accepted accounting principles.




“Good Utility
Practice” means the practices, methods, standards, guides, and acts, as
applicable, that (i) are generally accepted in the region during the relevant
time period in the electric transmission and distribution utility industry, (ii)
are commonly used in prudent utility engineering, construction, project
management, and operations, or (iii) would be expected if the Business is to be
conducted at a reasonable cost in a manner consistent with Laws and Orders
applicable to the Business and the objectives of reliability, safety,
environmental protection, economy, and expediency.  Good Utility
Practice includes acceptable practices, methods, or acts generally accepted in
the region, and is not limited to the optimum practices, methods, or acts to the
exclusion of all others.




“Governing Documents”
of a Person means the articles or certificate of incorporation and bylaws, or
comparable governing documents, of such Person.




“Governmental Entity”
means the United States of America and any other federal, state, tribal, local,
municipal or foreign governmental or regulatory authority, department, agency,
commission, body, court, or other governmental entity, including ERCOT and
SPP.




“Hazardous Material”
means (i) any chemicals, materials, substances, or wastes which are now or
hereafter defined as or included in the definition of “hazardous substance,”
“hazardous material,” “hazardous waste,” “solid waste,” “toxic substance,”
“extremely hazardous substance,” “pollutant,” “contaminant,” or words of similar
import under any applicable Environmental Laws; (ii) any petroleum, petroleum
products (including crude oil or any fraction thereof), natural gas, natural gas
liquids, liquefied natural gas or synthetic gas useable for fuel (or mixtures of
natural gas and such synthetic gas), or oil and gas exploration or production
waste, polychlorinated biphenyls, asbestos-containing materials, mercury, and
lead-based paints; and (iii) any other chemical, material, substances, waste, or
mixture thereof which is prohibited, limited, or regulated by Environmental
Laws.




“HSR
Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.






5




“Indebtedness” of any Person shall mean without
duplication: (a) all indebtedness of such Person for borrowed money, (b) all
obligations of such Personfor the deferred purchase price of property or
services (other than trade payables not overdue by more than 60 days incurred in
the ordinary course of such Person’s business, (c) all obligations of such
Personevidenced by
notes, bonds, debentures or similar instruments, (d) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property), (e) all capitalized lease obligations
of such Person (calculated in accordance with GAAP), (f) all obligations,
contingent or otherwise, of such Person as an account party to reimburse any
bank or other Person under acceptance, letter of credit or similar facilities,
(g) all obligations of such Person in respect of interest rate, commodity or
currency hedge agreements but excluding all Financial Hedges, (h) all
obligations of such Person to purchase, redeem, retire or otherwise acquire for
value any capital stock of such Person or any warrants, rights or options to
acquire such capital stock, (i) all Indebtedness of other Persons guaranteed by
such Person, (j) negative cash/overdraft, as calculated in accordance with GAAP,
(k) all Indebtedness referred to in clauses (a) through (j) above secured by (or
for which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Encumbrance on property (including accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness and (l) all accrued
interest, prepayment premiums, fees, expenses or penalties related to any of the
foregoing.  The Indebtedness of any Person shall include the
Indebtedness of any other entity (including any partnership in which such Person
is a general partner) to the extent such Person is liable therefore pursuant to
any guarantee or as a result of such Person’s ownership interest in or other
relationship with such entity, except to the extent the terms of such
Indebtedness expressly provide that such Person is not liable therefore.




“Independent Accounting
Firm” means KPMG LLP.




“Law”
means any constitution, statute, regulation, rule, charter, ordinance, code,
protocol, proceeding or similar act or promulgation of any Governmental
Entity.




“Losses” means losses,
liabilities, damages, obligations, payments, costs, and expenses (including the
costs and expenses of any and all actions, suits, proceedings, assessments,
judgments, settlements, and compromises relating thereto and reasonable
attorneys’ fees and reasonable disbursements in connection
therewith).




“Leased Real Property”
means the real property subject to the Real Property Leases.




“Material Business
Agreement” means a Contract (a) listed on Schedule1.01-A, (b) required to
be listed on Schedule1.01-A or (c) that would
be listed on Schedule1.01-A if such Contract
were in effect on the date of this Agreement.




“NewCorp” means
NewCorp Resources Electric Cooperative, Inc., a Texas corporation.




6




“Order” means any
rule, regulation, order, judgment, writ, injunction, decree, directive, or award
of a court, administrative agency, or other Governmental Entity acting in an
adjudicative, rulemaking or regulatory capacity, or of an arbitrator with
applicable jurisdiction over the subject matter.




“Owned Real Property”
means the real property set forth in Schedule1.01-F.




“Parent Excluded
Matter” means any one or more of the following: (a) any change in
the international, national, regional or local markets or industries in which
Parent operates or of which Parent is a part that does not disproportionately
affect Parent in any material respect as compared to similarly situated
companies in the industry in which Parent operates, (b) any change after
the date of this Agreement in any Law to the extent not disproportionately
affecting Parent in any material respect (excluding from this clause (b) any
change in any Law issued by, administered by or relating to the authority or
responsibilities of the PUCT or the New Mexico Public Regulatory Commission),
(c) any change in accounting standards, principles or interpretations,
(d) announcement of this Agreement or the Transactions (including
disruption or loss of customers, suppliers or employee relationships to the
extent related to any announcement with respect to this Agreement or the
Transactions), (e) any general change in international, national, regional,
or local economic, financial markets, or political conditions, including
prevailing interest rates, that does not disproportionately affect Parent in any
material respect as compared to similarly situated companies in the industry in
which Parent operates, (f) weather conditions or related customer use
patterns, (g) any change in the market price of commodities or publicly
traded securities, (h) war or terrorism or (i) failure by Parent to meet
revenue or earnings predictions.




“Parent Material Adverse
Effect” means a material adverse effect on (a) the business, assets,
properties, results of operations or financial condition of Parent and its
consolidated subsidiaries, taken as a whole, other than an effect
(i) resulting from a Parent Excluded Matter occurring after the date of
this Agreement or (ii) cured (including by payment of money or application
of insurance proceeds) before the Closing Date or (b) the ability of Parent to
perform its obligations under this Agreement.




“Parent Required Regulatory
Approvals” means (i) the filings by CES and Parent required by the HSR
Act and the expiration or earlier termination of all waiting periods under the
HSR Act, and (ii) the approvals set forth on Schedule1.01-B.




“Parties” shall mean,
collectively, Parent and Sub, on the one hand, and CES and the Company, on the
other, and “Party” means each of
Parent and Sub, on the one hand, or each of CES and the Company, on the
other.




“Permits” means all
permits, certificates, certifications, licenses, approvals, consents, waivers or
other authorizations of Governmental Entities issued under or with respect to
applicable Laws or Orders and used or held by any Cap Rock Entity for the
operation of the Business or the ownership, operation, or maintenance of its
assets, other than Environmental Permits and Franchises.






7




“Permitted
Encumbrances” means: (i) those Encumbrances set forth in Schedule1.01-C; (ii) statutory
liens for Taxes and assessments not yet due and payable or liens for Taxes being
contested in good faith and by appropriate proceedings (and as listed set forth
in Schedule1.01-C) for which
adequate reserves (in the good faith and judgment of the Company) have been
established; (iii) mechanics’, warehousemen’s, carriers’, mechanics’ workers’,
repairers’, landlords’, and other similar liens arising or incurred in the
ordinary course of business, and (A) which do not in the aggregate materially
detract from the value of property or assets subject to such Encumbrance or
materially impair the continued use thereof in the operation of the Business as
currently conducted or (B) which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing the
forfeiture or sale of the property or asset subject to the Encumbrance, or liens
(other than liens imposed by ERISA) incurred or deposits made in the ordinary
course of business in connection with workers’ compensation, unemployment
insurance and other types of social security, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, trade contracts,
leases, government contracts, performance and return-of-money bonds and other
similar obligations incurred in the ordinary course of business (exclusive of
obligations in respect of the payment for borrowed money); (iv) zoning,
entitlement, restriction, and other land use and environmental regulations by
Governmental Entities and third party encroachment agreements which do not
materially interfere with the continued use of any asset of any Cap Rock Entity
as currently used in the conduct of the Business; (v) any Encumbrances set forth
in any Franchise or governing ordinance under which any portion of the Business
is conducted; and (vi) all rights of condemnation, eminent domain, or other
similar rights of any Person.




“Person” means any
individual, partnership, limited liability company, joint venture, corporation,
trust, unincorporated organization, or Governmental Entity.




“PUCT” means the
Public Utility Commission of the State of Texas.




“Real Property Leases”
means the leases set forth in Schedule1.01-G.




“Regulatory Order”
means an Order issued by the PUCT or FERC or any Texas municipality that
affects, is related to or governs the rates, services, activities or operations
of the Business.




“Release” means any
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping, or disposing of Hazardous Materials into or through
the Environment.




“Representatives”
means a Party’s accountants, employees, counsel, environmental consultants,
financial advisors, and other representatives.




“Required Regulatory
Approvals” means the Company Required Regulatory Approvals and the Parent
Required Regulatory Approvals.




“SEMCO” means,
collectively, Semco Holding Corporation and SEMCO Energy, Inc.




8




“SEMCO Note” means the
promissory note dated December 14, 2007, and issued by Semco Holding Corporation
to the Company.




"Share Exchange" means
the exchange of the then-outstanding shares of common stock of Cap Rock Energy
Corporation pursuant to the Agreement and Plan of Share Exchange between Cap
Rock Holding Corporation and Cap Rock Energy Corporation dated as of November 4,
2005, for the right to receive $21.75 in cash.




“SPP” means the
Southwest Power Pool.




“Taxes” means all
taxes, charges, fees, levies, penalties, or other assessments imposed by any
foreign or United States federal, state, tribal or local Taxing Authority,
including income, excise, property, sales, use, gross receipts, windfall
profits, environmental (including taxes under Code Section 59A), employment,
severance,  stamp, capital stock, unemployment, disability,
registration, value added or add-on minimum,  compensating, transfer,
franchise, license, payroll, withholding, social security, estimated or other
taxes (including any escheat or unclaimed property obligations), in each case
including any interest, penalties, or additions attributable thereto, whether
disputed or not, and including any obligations to indemnify or otherwise assume
or succeed to the tax liability of any other Person.




“Taxing Authority”
means any Governmental Entity (other than ERCOT and SPP) administering,
regulating, or having general oversight over, or that imposes, determines, or
assesses, any Tax.




“Tax
Return” means any return, report, information return, or other document
(including any related or supporting information) required to be supplied to any
Governmental Entity with respect to Taxes.




“Territory” means the
service territory described in Schedule
1.01-H.




(b)  In
addition, each of the following terms has the meaning specified in the Exhibit
or Section set forth opposite such term:




Term
              Location
      of Term2006
      Audited Balance Sheet
              Section6.04(a)2006
      Audited Financial Statements
              Section6.04(a)Adjustment
      Dispute Notice
              Section3.02(b)Adjustment
      Amount
              Section3.02(d)Adjusted
      Purchase Price
              Section3.02(d)Aggregate
      Consideration
              Section3.01(b)Benefit
      Plan
              Section6.08(a)Business
      Regulatory Entity
              Section
      6.19Business
      Regulatory Proceeding
              Section
      6.19Cash
      Consideration
              Section
      4.01(c)(1)Certificate
      of Merger
              Section2.03


9
 Closing
                Section2.02Closing
      Date
                Section2.02Collective
      Bargaining Agreement
                Section6.07Company
      Balance Sheets
                Section6.04(a)Company
      Disclosure Letter
                Article
      VICompany
      Financial Statements
                Section6.04(a)Company
      Stockholders
                Section
      3.01(a)Company
      Stock Options
                Section3.01(b)Confidential
      Information
                Section8.02(b)Contest
                Section
      8.11(b)Current
      Assets
                Exhibit3.01(b)Current
      Liabilities
                Exhibit3.01(b)DGCL
                Section2.01Dissent
      Shares
                Section
      4.01(d)Dissenter
      Amount
                Section3.01(b)Dissenter
      Fraction
                Section3.01(b)DLLCA
                Section2.01Easements
                Section
      6.20Effective
      Time
                Section2.03Environmental
      Reports
                Section
      6.06(d)Estimated
      Closing Adjustment
                Section3.01(b)Exchange
      Agent
                Section4.02(a)Exchange
      Fund
                Section4.02(a)Fair
      Market Value
                Section4.01(c)Franchises
                Section6.09(d)Intellectual
      Property
                Section6.16Interim
      Company Balance Sheet
                Section6.04(a)Interim
      Company Financial Statements
                Section6.04(a)Leased
      Real Property
                Section6.09(a)(v)Major
      Customer
                Section6.18(b)Merger
                RecitalsMerger
      Consideration
                Section
      4.01(c)Other
      Adjustments
                Section
      3.01(b)Outstanding
      Indebtedness
                Section3.01(b)Post-Closing
      Adjustment Statement
                Section
      3.02Pre-Closing
      Tax Period
                Section
      8.11(a)Pro
      Forma Balance Sheet
                Section
      5.04Purchase
      Fraction
                Section
      3.01(b)Purchase
      Price
                Section3.01(b)Real
      Property Leases
                Section1.01Restricted
      Stock Agreement
                Section
      4.02(j)Section
      262
                Section
      3.03Specified
      Employees
                Section
      8.15Specified
      Agreement
                Section
      9.02(s)Straddle
      Period
                Section
      8.11(a)Surviving
      Entity
                Section2.01
   10
 Target
      Working Capital
                Section3.01(b)Tax
      Sharing Agreement
                6.14(d)Transactions
                Section2.01Total
      Enterprise Value
                Section3.01(b)Total
      Equity Value
                Section3.01(b)Termination
      Date
                Section11.01(b)Voting
      Company Debt
                Section6.05(a)Working
      Capital
                Section3.01(b)


SECTION
1.02.  Other Definitional and
Interpretive Matters.  Unless otherwise expressly provided, for
purposes of this Agreement, the following rules of interpretation
apply:




(a)  Calculation of Time
Period.  When calculating the period of time before which,
within which, or following which any act is to be done or step taken pursuant to
this Agreement, the date that is the reference date in calculating such period
will be excluded.  If the last day of such period is a non-Business
Day, the period in question will end on the next succeeding Business
Day.




(b)  Dollars.  Any
reference in this Agreement to “dollars” or “$” means U.S.
dollars.




(c)  Exhibits and
Schedules.  Unless otherwise expressly indicated, any reference
in this Agreement to an “Exhibit” or a “Schedule” refers to
an Exhibit or Schedule to this Agreement.  The Exhibits and Schedules
to this Agreement are hereby incorporated and made a part hereof as if set forth
in full herein and are an integral part of this Agreement.  Any
capitalized terms used in any Schedule or Exhibit but not otherwise defined
therein are defined as set forth in this Agreement.




(d)  Gender and
Number.  Any reference in this Agreement to gender includes all
genders, and the meaning of defined terms applies to both the singular and the
plural of those terms.




(e)  Headings.  The
provision of a Table of Contents, the division of this Agreement into Articles,
Sections, and other subdivisions, and the insertion of headings are for
convenience of reference only and do not affect, and will not be utilized in
construing or interpreting, this Agreement.  All references in this
Agreement to any “Section” are to the corresponding Section of this Agreement
unless otherwise specified.




(f)  “Herein”.  The
words such as “herein,” “hereinafter,” “hereof,” and “hereunder” refer to this
Agreement (including the Schedules and Exhibits to this Agreement) as a whole
and not merely to a subdivision in which such words appear unless the context
otherwise requires.




(g)  “Including”.  The
word “including” or any variation thereof means “including, without limitation”
and does not limit any general statement that it follows to the specific or
similar items or matters immediately following it.




11




SECTION
1.03.  Joint Negotiation and
Preparation of Agreement.  The Parties have participated
jointly in the negotiation and drafting of this Agreement and, in the event an
ambiguity or question of intent or interpretation arises, this Agreement will be
construed as jointly drafted by the Parties hereto and no presumption or burden
of proof favoring or disfavoring any Party will exist or arise by virtue of the
authorship of any provision of this Agreement.




ARTICLE
II




THE
MERGER




SECTION
2.01.  The
Merger.  On the terms and subject to the conditions set forth
in this Agreement, and in accordance with the Delaware General Corporation Law
(the “DGCL”) and the
Delaware Limited Liability Company Act (the “DLLCA”), Sub shall be
merged with and into the Company at the Effective Time, and at the Effective
Time the separate existence of Sub shall cease and the Company shall continue as
the surviving entity.  The entity that survives the Merger is
sometimes referred to in this Agreement as the “Surviving
Entity”.  The Merger and the other transactions contemplated
hereby are referred to in this Agreement collectively as the “Transactions”.




SECTION
2.02.  Closing.  Upon
the terms and subject to the satisfaction of the conditions contained in Article IX, the
closing (the “Closing”) of the
Merger will take place at the offices of Parent in Albuquerque, New Mexico,
beginning at 10:00 A.M. (Albuquerque, New Mexico time) on the second Business
Day following the date on which the conditions set forth inArticle IX (other
than conditions to be satisfied by deliveries at the Closing) have been
satisfied or waived, or at such other place or time as the Parties may
agree.  The date on which the Closing occurs is referred to in this
Agreement as the “Closing
Date”.  At the Closing (i) the Company shall deliver to Parent
and Sub the various certificates, instruments and documents referred to in Section 9.02, and
(ii) Parent and Sub shall deliver to the Company the various certificates,
instruments and documents referred to in Section
9.03.  At the Closing, Parent shall deliver to the Company, or
to the holders of the Outstanding Indebtedness on behalf of the Company, by wire
transfer of cash in immediately available funds, an amount equal to the
Outstanding Indebtedness plus accrued and unpaid interest if any, to the Closing
Date, but in no event more than the Total Enterprise Value minus the Purchase
Price, to pay such Outstanding Indebtedness and against release of any further
liability or obligation with respect to such Outstanding Indebtedness and
termination of any Encumbrances securing such Outstanding
Indebtedness.




SECTION
2.03.  Effective
Time.  Prior to the Closing, Parent shall prepare, and on the
Closing Date or as soon as practicable thereafter the Surviving Entity shall
file with the Secretary of State of the State of Delaware, a certificate of
merger or other appropriate documents (in any such case, the “Certificate of
Merger”) executed in accordance with the relevant provisions of the DGCL
and the DLLCAand
shall make all other filings or recordings required under the DGCL and the
DLLCA.  The Merger shall become effective at such time as the
Certificate of Merger is duly filed with such Secretary of State, or at such
other time as Parent and the Company shall agree and specify in the Certificate
of Merger (the time the Merger becomes effective being the “Effective
Time”).






12




SECTION
2.04.  Effects.  The
Merger shall have the effects set forth in Section 259 of the DGCL and Section
18-209 of the DLLCA.




SECTION
2.05.  Governing
Documents.  The Governing Documents of the Surviving Entity
shall not be changed by the Merger.




SECTION
2.06.  Additional
Action.  The Surviving Entity may, at any time after the
Effective Time, take any action, including executing and delivering any
document, in the name and on behalf of either the Company or the Sub, in order
to consummate the Transactions.




ARTICLE
III




PURCHASE
PRICE




SECTION
3.01.  Purchase
Price.  (a)  The aggregate purchase price (the
“Purchase Price”) to be paid by Parent to the holders of Company Common Stock
(the “Company
Stockholders”) in the Merger shall be calculated in accordance with Section 3.01(b),
subject to adjustment in accordance with Section
3.02.




(b)  For
purposes of this Agreement:




“Company Stock
Options” means employee stock options granted by the
Company.




“Dissenter Amount”
means the product of (i) (A) $202,500,000 plus or minus (B) the Estimated
Closing Adjustment, as applicable, and (ii) the Dissenter Fraction.




“Dissenter Fraction”
means a fraction, the numerator of which is the number of Dissent Shares
(determined as of two Business Days preceding the Closing Date) and the
denominator of which shall be the number of shares of Company Common Stock
outstanding on the Closing Date assuming the exercise of all Company Stock
Options outstanding immediately prior to their cancellation on the Closing
Date.




“Estimated Closing
Adjustment” means (i) Working Capital less Target Working Capital, less (ii) Other
Adjustments, less (iii)
Outstanding Indebtedness, in each case as estimated in good faith by the chief
financial officer of the Company and delivered to Parent at least two Business
Days prior to the Closing Date and approved by Parent.




“Other Adjustments”
means all expenses incurred by the Company, including expenses (including legal
counsel and accountants’ fees and expenses) incurred by CES or any of its
Affiliates that the Company has agreed to pay, in connection with the
Transactions (including all costs, expenses and Taxes associated with compliance
with this Agreement or the Asset Purchase Agreement), that are paid on or after
the Closing Date or on or after the “Closing Date” under the Asset Purchase
Agreement.




13




“Outstanding
Indebtedness” means the outstanding Indebtedness of the Cap Rock
Entities, calculated on a consolidated basis on the Closing Date [less any such
Indebtedness actually prepaid in full by CES immediately prior to the Closing on
the Closing Date.




“Purchase Fraction”
means a fraction, the numerator of which is the number of shares of Company
Common Stock outstanding on the Closing Date and the denominator of which is the
number of shares of Company Common Stock outstanding on the Closing Date
assuming the exercise of all Company Stock Options outstanding immediately prior
to their cancellation.




“Purchase Price” means
the product of (i) the Purchase Fraction and (ii) (A) the Total Equity Value
plus (B) the
amount that would be received by the Company upon the exercise of all Company
Stock Options outstanding immediately prior to the cancellation of all Company
Stock Options.




“Target Working
Capital” means $854,000.




“Total Enterprise
Value” means $202,500,000 less the Dissenter Amount.




“Total Equity Value”
means (i) if the Estimated Closing Adjustment is positive, (x) Total Enterprise
Value plus (y) the Estimated Closing Adjustment, and (ii) if the Estimated
Closing Adjustment is negative, (x) Total Enterprise Value less (y) the
absolute value of the Estimated Closing Adjustment.




“Working Capital”
means Current Assets minus Current Liabilities of the Cap Rock Entities on a
consolidated basis, as determined in accordance with GAAP and Exhibit
3.01(b).




SECTION
3.02.  Determination of Adjustment
Amount.  (a)  Within 120 days after the Closing Date,
CES will prepare and deliver to Parent a statement (the “Post-Closing Adjustment
Statement”) that reflects CES’s determination of the Adjustment
Amount.  In addition, CES will provide Parent with supporting
calculations, in reasonable detail, for such determinations at the time it
delivers the Post-Closing Adjustment Statement.  Parent will cooperate
with CES in connection with CES’s preparation of the Post-Closing Adjustment
Statement and related information, and will provide CES with access to its
books, records, information, and employees as CES may reasonably
request.




(b)  The
amounts determined by CES as set forth in the Post-Closing Adjustment Statement
will be final, binding, and conclusive for all purposes unless, and only to the
extent, that within 30 days after CES has delivered the Post-Closing Adjustment
Statement Parent notifies CES of any dispute with matters set forth in the
Post-Closing Adjustment Statement.  Any such notice of dispute
delivered by Parent (an “Adjustment Dispute
Notice”) will identify with specificity each item in the Post-Closing
Adjustment Statement with respect to which Parent disagrees, the basis of such
disagreement, and Parent’s position with respect to such disputed
item.






14




(c)  If
Parent delivers an Adjustment Dispute Notice in compliance with Section 3.02(b), then
Parent and CES will attempt to reconcile their differences and any resolution by
them as to any disputed amounts will be final, binding, and conclusive for all
purposes on the Parties.  If Parent and CES are unable to reach a
resolution with respect to all disputed items within 45 days of delivery of the
Adjustment Dispute Notice, Parent and CES will submit any items remaining in
dispute for determination and resolution to the Independent Accounting Firm,
which will be instructed to determine and report to the Parties, within 30 days
after such submission, upon such remaining disputed items.  The report
of the Independent Accounting Firm will be final, binding, and conclusive on the
Parties for all purposes.  The fees and disbursements of the
Independent Accounting Firm will be allocated between Parent and CES (acting on
behalf of the Company Stockholders) so that Parent’s share of such fees and
disbursements will be in the same proportion that the aggregate amount of such
remaining disputed items so submitted to the Independent Accounting Firm that is
unsuccessfully disputed by Parent (as finally determined by the Independent
Accounting Firm) bears to the total amount of such remaining disputed amounts so
submitted to the Independent Accounting Firm.




(d)  The
“Adjustment
Amount” means (i) Working Capital less Target Working Capital, less (ii) Other
Adjustments, less (iii)
Outstanding Indebtedness, less (iv) the
Estimated Closing Adjustment.  The Purchase Price shall be increased
or decreased, as applicable, by the product of (A) the Adjustment Amount and (B)
the Purchase Fraction (as so adjusted, the “Adjusted Purchase
Price”).  If the Purchase Price is less than the Adjusted
Purchase Price, Parent shall, and if the Purchase Price is more than the
Adjusted Purchase Price, CES, on behalf of each Company Stockholder, shall,
within five Business Days after the Post-Closing Adjustment Statement becomes
final and binding on the Parties, make payment to the other by wire transfer of
cash in immediately available funds of the amount of such
difference.  Any amount to be paid pursuant to this Section 3.02(d)
shall be paid with interest thereon at a rate equal to JPMorgan’s prime rate
from time to time in effect, from the Closing Date to the date of
payment.




SECTION
3.03.  Dissent
Adjustment.  In the event that the amount of the fair value of
the Dissent Shares, determined in accordance with Section 262 of the DGCL
(“Section 262”)
or by settlement, exceeds the Dissenter Amount, then CES, on behalf of each
Company Stockholder, shall, within five Business Days of the final determination
of the fair value under Section 262, make payment to Parent by wire transfer of
cash in immediately available funds of the amount of such
difference.




SECTION
3.04.  Withholding
Rights.  Parent, Sub and the Surviving Entity shall be entitled
to deduct and withhold from the consideration otherwise payable to any Person
pursuant to this Agreement such amounts as it is required to deduct and withhold
with respect to the making of such payment under any provision of federal,
state, local or foreign tax law.  If Parent, Sub or the Surviving
Entity so withholds amounts, such amounts shall be treated for all purposes of
this Agreement as having been paid to the Person in respect of which Parent, Sub
or the Surviving Entity made such deduction and withholding.






15




ARTICLE
IV




EFFECT ON
THE CAPITAL STOCK OF THE CONSTITUENT ENTITIES; EXCHANGE OF
CERTIFICATES




SECTION
4.01.  Effect on Capital
Stock.  At the Effective Time, by virtue of the Merger and
without any action on the part of the holder of any shares of Company Common
Stock or any equity interest of Sub:




(a)  Sub.  Each
issued and outstanding equity interest of Sub shall be converted into and become
one fully paid and nonassessable share of common stock, par value $0.01 per
share, of the Surviving Entity.




(b)  Cancellation of Treasury
Stock and Parent-Owned Stock.  Each share of Company Common
Stock that is owned by the Company, Parent or Sub shall no longer be outstanding
and shall automatically be cancelled and retired and shall cease to exist, and
no Parent Common Stock or other consideration shall be delivered or deliverable
in exchange therefor.




(c)  Conversion of Company Common
Stock.  (1)  Subject to Sections 4.01(b) and 4.01(d)
each issued share of Company Common Stock shall be converted into the right to
receive (A) an amount in cash equal to the Purchase Price divided by the number
of issued shares of Company Common Stock (the “Cash Consideration”),
plus or minus (B) a pro rata share of the cash payment, if any, to be made
pursuant to Section 3.02(d).




(2)  The cash
payable upon the conversion of shares of Company Common Stock pursuant to this
Section 4.01 is
referred to collectively as “Merger
Consideration”.  As of the Effective Time, all such shares of
Company Common Stock shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Company Common Stock shall cease to have any
rights with respect thereto, except the right to receive Merger Consideration
upon surrender of such certificate in accordance withSection 4.02,
without interest.






16




(d)  Notwithstanding anything in this Agreement to the contrary, shares (“Dissent Shares”) of
Company Common Stock that are outstanding immediately prior to the Effective
Time and that are held by any Person who is entitled to demand and properly
demands payment of the fair value of such Dissent Shares pursuant to, and who
complies in all respects with, Section 262 shall not be converted into Merger
Consideration as provided inSection 4.01(c),
but rather the holders of Dissent Shares shall be entitled to payment of the
fair market value of such Dissent Shares in accordance with Section 262; provided, however, that if any
such holder shall fail to perfect or otherwise shall waive, withdraw or lose the
right to appraisal under Section 262, then the right of such holder to be paid
the fair value of such holder's Dissent Shares shall cease and such Dissent
Shares shall be deemed to have been converted as of the Effective Time into, and
to have become exchangeable solely for the right to receive, Merger
Consideration as provided in Section
4.01(c).  The Company shall give Parent prompt notice of
any written demands for appraisal of any Company Common Stock, withdrawals of
any such demands, and any other instruments that relate to any such demands
received by the Company.




SECTION
4.02.  Exchange of
Certificates.  (a)  Exchange
Agent.  Promptly following the Effective Time, Parent shall
take all steps necessary to enable and cause the Surviving Entity to deposit
with an exchange agent to be mutually agreed upon (the “Exchange Agent”), for
the benefit of the Company Stockholders, all the cash necessary to pay for the
shares of Company Common Stock converted into the right to receive cash pursuant
toSection 4.01
(such cash being hereinafter referred to as the “Exchange
Fund”).




(b)  Exchange
Procedures.  As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates (the “Certificates”) that
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock whose shares were converted into the right to receive
Merger Consideration pursuant toSection 4.01, (i)
a letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Exchange Agent and shall be in such form and have such
other provisions as Parent may reasonably specify) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for Merger
Consideration.  Upon surrender of a Certificate for cancellation to
the Exchange Agent, together with such letter of transmittal, duly executed, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor the
amount of cash into which the shares of Company Common Stock theretofore
represented by such Certificate have been converted pursuant to the provisions
of this Article IV, and
the Certificate so surrendered shall forthwith be cancelled.  Until
surrendered as contemplated by this Section 4.02, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender Merger Consideration as
contemplated by this Section
4.02.  No interest shall be paid or accrue on any cash payable
upon surrender of any Certificate.  Notwithstanding the foregoing, all
Merger Consideration to be paid or issued to CES shall be paid or issued on the
Closing Date against delivery of its Certificates.




17




(c)  No Further Ownership Rights
in Company Common Stock.  The Merger Consideration issued (and
paid) in accordance with the terms of this Article IV upon
conversion of any shares of Company Common Stock shall be deemed to have been
issued (and paid) in full satisfaction of all rights pertaining to such shares
of Company Common Stock, and after the Effective Time there shall be no further
registration of transfers on the stock transfer books of the Surviving Entity of
shares of Company Common Stock that were outstanding immediately prior to the
Effective Time.  If, after the Effective Time, any certificates
formerly representing shares of Company Common Stock are presented to the
Surviving Entity or the Exchange Agent for any reason, they shall be cancelled
and exchanged as provided in this Article
IV.




(d)  Termination of Exchange
Fund.  Any portion of the Exchange Fund that remains
undistributed to the holders of Company Common Stock for six months after the
Effective Time shall be delivered to Parent, upon demand, and any holder of
Company Common Stock who has not theretofore complied with this Article IV shall
thereafter look only to Parent for payment of its claim for Merger
Consideration.




(e)  No
Liability.  None of Parent, Sub, the Company or the Exchange
Agent shall be liable to any Person in respect of any cash from the Exchange
Fund delivered to a public official pursuant to any applicable abandoned
property, escheat or similar Law.  If any Certificate has not been
surrendered prior to five years after the Effective Time (or immediately prior
to such earlier date on which Merger Consideration in respect of such
Certificate would otherwise escheat to or become the property of any
Governmental Entity) any such shares, cash, dividends or distributions in
respect of such Certificate shall, to the extent permitted by applicable Law,
become the property of the Surviving Entity, free and clear of all claims or
interest of any Person previously entitled thereto.




(f)  Investment of Exchange
Fund.  The Exchange Agent shall invest any cash included in the
Exchange Fund, as directed by Parent, on a daily basis.  Any interest
and other income resulting from such investments shall be paid to
Parent.




(g)  Schedule for
Payment.  At the time of the delivery of the Estimated Closing
Adjustment, CES shall deliver to Parent and the Exchange Agent a schedule
showing (i) the number of shares of Company Common Stock to be outstanding
immediately prior to the Effective Time (including shares under Restricted Stock
Agreements that will be vested upon the consummation of the Merger) and the
holders thereof, (ii) the number of shares of Company Common Stock subject to
Company Common Stock Options that will be terminated at the Effective Time in
exchange for payments pursuant to Section 8.08 and the
holders thereof, (iii) the allocation of the Purchase Price (before adjustment
pursuant to Section
3.01(b)) among such holders and (iv) the amounts due to all such holders
pursuant to Section
8.08(a).  Such schedule shall be binding upon all holders of Company
Common Stock and all holders of Company Stock Options.




ARTICLE
V




REPRESENTATIONS AND
WARRANTIES OFCAP ROCK HOLDING
LLC




CES
represents and warrants to Parent, as of the date of this Agreement and as of
the Effective Time, as set forth in this Article
V:




18




SECTION
5.01.  Organization;
Qualification.  CES is a Delaware limited liability company
duly organized, validly existing and in good standing under the laws of the
state of Delaware and has all requisite limited liability company power and
authority to own, lease, and operate its properties and to carry on its business
as is now being conducted.  CES is duly qualified or licensed to do
business as a foreign limited liability company and is in good standing in each
jurisdiction in which it conducts its business, except where the failure to be
so qualified has not had and would not reasonably be expected to have a material
adverse effect.




SECTION
5.02.  Authority Relative to this
Agreement.  CES has all limited liability company power and
authority necessary to execute and deliver this Agreement and to consummate the
Transactions.  The execution and delivery of this Agreement and the
consummation of the Transactions have been duly and validly authorized by the
managing members of CES, and no other limited liability company proceedings on
the part of CES are necessary to authorize this Agreement or to consummate the
Transactions.  This Agreement has been duly and validly executed and
delivered by CES and constitutes the valid and binding agreement of CES,
enforceable against CES in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, moratorium,
or other similar laws affecting or relating to enforcement of creditors’ rights
generally or general principles of equity (regardless of whether enforcement is
considered in a proceeding at law or in equity).




SECTION
5.03.  Consents and Approvals; No
Violation.  The execution and delivery of this Agreement by
CES, and the consummation by CES of the Transactions, do not:




(a)  conflict
with or result in any breach of the Governing Documents of CES;




(b)  result in
a default (including with notice, lapse of time, or both), or give rise to any
right of termination, cancellation, or acceleration, under any of the terms,
conditions, or provisions of any Contract to which CES is a party or by which
CES is bound; or




(c)  violate
any Law or Order applicable to CES.




SECTION
5.04.  Pro Forma Balance
Sheet.  The Company Disclosure Letter sets forth an unaudited
consolidated balance sheet of CES and its subsidiaries, after giving effect to
the consummation of the Transactions at the Closing and to the consummation of
the transactions under the Asset Purchase Agreement at the “Closing” under the
Asset Purchase Agreement, as if such transactions had occurred on December 31,
2007 (the “Pro Forma Balance Sheet”).  The Pro Forma Balance Sheet is a
good faith estimate of the consolidated pro forma financial condition of CES and
its subsidiaries as of such date.




SECTION
5.05.  Fees and
Commissions.  No broker, finder, or other Person is entitled to
any brokerage fees, commissions, or finder’s fees for which the Company or any
Cap Rock Entity could become liable or obligated in connection with the
Transactions by reason of any action taken by CES.






19


ARTICLE
VI




REPRESENTATIONS
AND WARRANTIES OF THE COMPANY




Except as
set forth in, or qualified by any matter set forth in, the disclosure schedule
delivered by the Company to Parent contemporaneously herewith, including the
documents attached to or incorporated by reference in such disclosure schedule
(collectively, the “Company Disclosure
Letter”) (provided, that any
matter disclosed in a section of the Company Disclosure Letter shall be deemed
disclosed for all purposes and all Sections only to the extent that the
relevance of any such disclosure to any other Section is reasonably apparent
from the text of such disclosure), the Company represents and warrants to
Parent, as of the date of this Agreement and as of the Effective Time, as set
forth in this Article
VI.




SECTION
6.01.  Organization;
Qualification.  Each Cap Rock Entity is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it was
organized and has all requisite corporate power and authority to own, lease and
operate its properties and assets and to carry on its business as presently
conducted.  Each Cap Rock Entity is duly qualified or licensed to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the conduct of its business requires such qualification, except where
the failure to be so qualified has not had and would not reasonably be expected
to have a Cap Rock Material Adverse Effect.  The Company has
heretofore made available to Parent true, complete, and correct copies of the
Governing Documents of each Cap Rock Entity, as currently in
effect.




SECTION
6.02.  Authority Relative to this
Agreement.  (a)  The Company has all corporate power
and authority necessary to execute and deliver this Agreement and to consummate
the Transactions.  The execution and delivery of this Agreement and
the consummation of the Transactions have been duly and validly authorized by
the board of directors of the Company and, except for approval of this Agreement
by the Company Stockholders, no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
Transactions.  This Agreement has been duly and validly executed and
delivered by the Company, and constitutes the valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, or other similar laws affecting or relating to enforcement of
creditors’ rights generally or general principles of equity (regardless of
whether enforcement is considered in a proceeding at law or in
equity).




(b)  The
board of directors of the Company has adopted such resolutions, or such other
actions have been taken, as are required to provide that, effective as of the
Effective Time, without any further action or consent on the part of any holder
of Company Stock Options, each Company Stock Option shall be cancelled and each
holder thereof shall be entitled to receive in consideration for such
cancellation an amount in cash as provided in Section
8.08.






20




SECTION
6.03.  Consents and Approvals; No
Violation.  The execution and delivery of this Agreement by the
Company, and the consummation by the Company of the Transactions, do
not:




(a)  conflict
with or result in any breach of the Company’s Governing Documents;




(b)  result in
a default (including with notice, lapse of time, or both), or give rise to any
right of termination, cancellation, acceleration, or loss of a material benefit
under, or result in the creation of any Encumbrance upon any asset of any Cap
Rock Entity, under any of the terms, conditions, or provisions of any note,
bond, mortgage, indenture, agreement, lease, or other instrument or obligation
to which any Cap Rock Entity is a party or by which any Cap Rock Entity or any
of its assets may be bound, except for such defaults (or rights of termination,
cancellation, or acceleration) as to which requisite waivers or consents have
been obtained and are listed on Section 6.03(b) of
the Company Disclosure Letter, or will prior to the Effective Time be, obtained
or which if not obtained or made, individually or in the aggregate, have not had
and would not reasonably be expected to have a Cap Rock Material Adverse
Effect;




(c)  subject
to obtaining the Company Required Regulatory Approvals, conflict with or result
in a violation of any Law or Order applicable to any Cap Rock Entity or any of
its assets which, individually or in the aggregate, has had or would reasonably
be expected to have a Cap Rock Material Adverse Effect; or




(d)  require
any declaration, filing, or registration with, or notice to, or authorization,
consent, or approval of any Governmental Entity, other than (i) the Company
Required Regulatory Approvals, (ii) such declarations, filings, registrations,
notices, authorizations, consents, or approvals which, if not obtained or made,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Cap Rock Material Adverse Effect or (iii) any requirement
which becomes applicable to any Cap Rock Entity as a result of the specific
regulatory status of Parent (or any of its Affiliates) or as a result of any
other facts that specifically relate to any business or activities in which
Parent (or any of its Affiliates) is or proposes to be engaged.




SECTION
6.04.  Financial
Information.  (a)  The Company Disclosure Letter sets
forth a true, complete and accurate copy of each of (i) the audited consolidated
balance sheet of the Company and its subsidiaries as of December 31, 2006 (the
“2006 Audited Balance
Sheet”) and the audited consolidated statements of income and cash flows
of the Company and its subsidiaries for the period from May 11, 2006 to December
31, 2006 (together with the 2006 Audited Balance Sheet, the “2006 Audited Financial
Statements”) and (ii) the unaudited consolidated balance sheet of the
Company and its subsidiaries as of September 30, 2007 (the “Interim Company Balance
Sheet” and, such Interim Company Balance Sheet together with the 2006
Audited Balance Sheet, the “Company Balance
Sheets”) and the unaudited consolidated statement of income of the
Company and its subsidiaries for the nine-month period ended September 30, 2007
(together with the Interim Company Balance Sheet, the “Interim Company Financial
Statements” and, such Interim Company Financial Statements together with
the 2006 Audited Financial Statements, the “Company Financial
Statements”).  The Company Financial Statements have been
prepared in accordance with GAAP, except in the case of the Interim Company
Financial Statements for normal year-end adjustments and the omission of full
footnotes.  Each of the Company Balance Sheets presents fairly in all
material respects the financial condition of the Company and its subsidiaries as
of such date and each income statement included in the Company Financial
Statements presents fairly in all material respects the results of operations of
the Company and its subsidiaries for the periods covered
thereby.






21




(b)  Except
for matters reserved against in the Company Financial Statements, each of the
Company and any Cap Rock Entity had not at September 30, 2007, and has not
incurred since that date, any liabilities or obligations (whether absolute,
accrued, contingent, fixed or otherwise, whether due or to become due) of any
nature that would be required by GAAP to be reflected on a consolidated balance
sheet of the Company (including the notes thereto), except liabilities or
obligations which were incurred in the ordinary course of business consistent
with past practice.




(c)  The Cap
Rock Entities maintain a system of internal accounting controls that is, to the
Company’s Knowledge, sufficient to provide reasonable assurances that (i) normal
course business transactions are executed in accordance with management’s
general or specific authorization; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management’s general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.




SECTION
6.05.  Capital Stock, Corporate
Information.  (a)  Section 6.05(a) of
the Company Disclosure Letter sets forth for each Cap Rock Entity the amount of
its authorized capital stock, the amount of its outstanding capital stock and
the record and beneficial owners of its outstanding capital
stock.  Except as set forth in Section 6.05(a) of
the Company Disclosure Letter, there are no shares of capital stock or other
equity securities (or, in the case of NewCorp, member interests) of any Cap Rock
Entity that have been issued, reserved for issuance or
outstanding.  The outstanding shares of capital stock of each Cap Rock
Entity (and member interests in NewCorp) are duly authorized, validly issued,
fully paid and nonassessable and not subject to or issued in violation of any
purchase option, call option, right of first refusal, preemptive right,
subscription right or any similar right under any provision of the DGCL or the
BCAT, as applicable, the Governing Documents of any Cap Rock Entity or any
Contract to which a Cap Rock Entity is a party or otherwise
bound.  The outstanding shares of capital stock (and member interests
in the case of NewCorp) of each Cap Rock Entity are owned free and clear of all
pledges, liens, charges, mortgages, assignments, rights of setoff, encumbrances
and security interests or options, voting agreements, proxies, rights of
first






22




refusal
or other restrictions or matters affecting the disposition or voting thereof, of
any kind whatsoever.  None of the Cap Rock Entities has any
outstanding bonds, debentures, notes or other Indebtedness having the right to
vote (or which are convertible into, or exchangeable for, securities having the
right to vote) on any matters on which holders of the capital stock (or member
interests) of each such Cap Rock Entity may vote (“Voting Company
Debt”).  Except as set forth in Section 6.05(a) of
the Company Disclosure Letter, there are not any options, warrants, rights,
convertible or exchangeable securities, “phantom” stock rights, stock
appreciation rights, stock-based performance units, commitments, Contracts,
arrangements or undertakings of any kind to which any Cap Rock Entity is a party
or by which any of them are bound (i) obligating any Cap Rock Entity to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
its capital stock or other equity interests in, or member interests in, or any
security convertible or exercisable for or exchangeable into any capital stock
of or other equity interest or member interest in the Company or any other Cap
Rock Entity or Voting Company Debt, (ii) obligating any Cap Rock Entity to
issue, grant, extend or enter into any such option, warrant, call, right,
security, commitment, Contract, arrangement or undertaking or (iii) that
give any Person the right to receive any economic benefit or right similar to or
derived from the economic benefits and rights occurring to holders of the
capital stock or member interests of any Cap Rock Entity.  There are
not any outstanding contractual obligations of any Cap Rock Entity to
repurchase, redeem or otherwise acquire any shares of its capital stock (or
member interests) or the capital stock (or member interests) of any other Cap
Rock Entity.




(b)  Except
for its interests in Cap Rock Entities, none of the Cap Rock Entities owns,
directly or indirectly, any capital stock, membership interest, partnership
interest, joint venture interest or other equity interest in any
Person.




(c)  Section 6.05(c) of
the Company Disclosure Letter sets forth a list of the officers and directors of
each Cap Rock Entity as of the date of this Agreement.




(d)  The
Company has made available to Parent the corporate minute books and stock
records for each Cap Rock Entity, including original documentation or true,
complete and correct copies of the minutes of all proceedings of the respective
boards of directors (including any committees thereof), stockholders and members
of each Cap Rock Entity, and any and all written consents of the respective
boards of directors (including any committees thereof) and stockholders or
members in lieu of meetings for each Cap Rock Entity, in the case of the Company
and Cap Rock Intermediate since their respective dates of incorporation, for Cap
Rock Energy its stock records since May 11, 2006 and corporate minutes since May
14, 2003, and in the case of NewCorp its member records and corporate minutes
since April 22, 2003.




SECTION
6.06.  Environmental.  The
only representations and warranties given in respect to Environmental Laws,
Environmental Permits, Environmental Claims or other environmental matters are
those contained in Sections 6.03, 6.04,
6.13 and this Section 6.06, and
none of the other representations and warranties contained in this Agreement
will be deemed to constitute, directly or indirectly, a representation and
warranty with respect to Environmental Laws, Environmental Permits,
Environmental Claims, or other environmental matters.  All such
matters are governed exclusively by Sections 6.03, 6.04,
6.13, this Section 6.06, and by
Article
X.






23




(a)  Except
as set forth in Section 6.06-(a)-1 of
the Company Disclosure Letter, (i) the Company or other Cap Rock Entities
possess all Environmental Permits necessary to operate the Business as currently
being operated, (ii) to the Company’s Knowledge the Company and other Cap Rock
Entities are in compliance, in all material respects, with the requirements of
all Environmental Permits and Environmental Laws, and (iii) to the Company’s
Knowledge, no Cap Rock Entity has received any written notice or information
that any applicable Governmental Entity intends to modify, suspend, revoke, or
withdraw (in a manner that would reasonably be expected to have a material
adverse impact on such Cap Rock Entity), any Environmental Permit.  Section
6.06(a)-2 of the Company
Disclosure Letter sets forth a list of all material Environmental Permits held
by the Cap Rock Entities for the operation of the Business as presently
conducted.




(b)  Except as
set forth in Section
6.06(b) of the Company Disclosure Letter, no Cap Rock Entity has received
within the last three years any written notice, report, or other information
regarding any actual or alleged violation of Environmental Laws or Environmental
Permits, or any liabilities or potential liabilities, including any
investigatory, remedial, or corrective obligations, relating to the Business
arising under Environmental Laws.




(c)  Except as
set forth in Section
6.06(c) of the Company Disclosure Letter, (i) to the Company’s Knowledge,
there is and has been no Release or threatened Release (as that term is used or
interpreted under or pursuant to CERCLA) from, in, on, or beneath the Owned Real
Property, the Leased Real Property or any other real property used or occupied
by any Cap Rock Entity or otherwise relating to the Business, including, to the
Company’s Knowledge, any off site location, that could form a basis for an
Environmental Claim against any Cap Rock Entity or Parent, and (ii) there are no
Environmental Claims related to any Cap Rock Entity or the Business, which are
pending or, to the Company’s Knowledge, threatened against any Cap Rock
Entity.




(d)  The
Company has made available to Parent all material correspondence from any
Governmental Entity, studies, audits, reviews, investigations, analyses, and
reports on material environmental matters relating to the Cap Rock Entities or
the Business that are in the possession or reasonable control of the Company
(the “Environmental
Reports”).




SECTION
6.07.  Labor
Matters.  (a)  Section 6.07(a) of the Company
Disclosure Letter lists each collective bargaining agreement covering any of the
Company Employees to which any Cap Rock Entity is a party or is subject (each, a
“Collective Bargaining
Agreement”).  Except as has not had and would not reasonably be
expected to have a Cap Rock Material Adverse Effect, (i) the Company is in
compliance with all Laws applicable to the Company Employees respecting
employment and employment practices, terms and conditions of employment, and
wages and hours; (ii) the Company has not received written notice of any
unfair labor practice complaint against the Company pending before the National
Labor Relations Board with respect to any of the Company Employees;
(iii) the Company has not received notice that any representation petition
respecting the Company Employees has been filed with the National Labor
Relations Board; (iv) no grievance or arbitration proceeding arising out of
or under the Collective Bargaining Agreements is pending against the Company;
and (v) there is no labor strike, slowdown, work stoppage, or lockout
actually pending or, to the Company’s Knowledge, threatened against the
Company.  The Company has made available to Parent a true, correct,
and complete copy of each Collective Bargaining Agreement.






24


(b)           
Except as set forth in Section 6.07(b) of
the Company Disclosure Letter, none of the Company and Cap Rock Intermediate now
has, or has ever had any employees (whether on a full-time, part-time, or
temporary basis).  As of the date of this Agreement, there are no
material complaints, charges or claims against any Cap Rock Entity pending or,
to the Company’s knowledge, threatened which could be brought or filed with any
Governmental Authority, arbitrator or court based on, arising out of, in
connection with or otherwise relating to the employment or termination of
employment by any Cap Rock Entity of any individual.




SECTION
6.08.  ERISA; Benefit
Plans.
(a)  Section 6.08(a)
of the Company Disclosure Letter lists each employee benefit plan (as such term
is defined in Section 3(3) of ERISA) and each other plan, program, arrangement,
or legally binding agreement or commitment providing compensation (including
bonus, deferred compensation or incentive compensation) or benefits to current
or former employees or independent contractors that is maintained by,
contributed to, or required to be contributed to by the Company (or any ERISA
Affiliate of the Company) or with respect to which the Company (or any ERISA
Affiliate of the Company) has any actual or contingent liability (each, a “Benefit
Plan”).  With respect to each Benefit Plan (where
applicable):  the Company has delivered or made available to Parent
complete and accurate copies of (i) all plan documents, trust agreements,
summary plan descriptions, summaries of material modifications, any material
written interpretations or descriptions given to plan participants or others,
any other descriptive material delivered to plan participants, and all annuity
contracts or other funding arrangements or instruments, (ii) complete written
descriptions of any Benefit Plan that is not in writing, (iii) all determination
letters received from the Internal Revenue Service, (iv) annual reports (Forms
5500), including all schedules and audited financial statements, for the most
recent three plan years, (v) actuarial reports, if any, for the most recent
three plan years, (iv) all notices that were given by the Internal Revenue
Service, the Pension Benefit Guaranty Corporation, or the Department of Labor
with respect to any Benefit Plan within the last three years; and (vi) such
other documents or information as Parent reasonably requests.




(b)  Each
Benefit Plan that is intended to be qualified under Section 401(a) of the Code
has received a determination from the Internal Revenue Service that such Benefit
Plan is so qualified, and each trust that is intended to be exempt under Section
501(a) of the Code has received a determination letter that such trust is so
exempt.  Nothing has occurred since the date of such most recent
determination letter that would materially adversely affect the qualified or
exempt status of such Benefit Plan or trust, nor will the consummation of the
transactions provided for by this Agreement have any such
effect.  Each Benefit Plan has been administered and operated in all
material respects in accordance with its terms and in compliance in all material
respects with the applicable provisions of ERISA and all other applicable
laws.






25


(c)  No
Benefit Plan utilizes a funding vehicle described in Section 501(c)(9) of the
Code.




(d)  Neither
the Company nor any ERISA Affiliate of the Company has contributed in the past
five years to a “multiemployer plan” within the meaning of Section 3(37) of
ERISA, and, to the Company’s Knowledge, there is no circumstance, event or
condition which could cause the Company or the Parent to incur any liability in
respect of any multiemployer plan.




(e)  Neither
the Company nor any ERISA Affiliate of the Company has, or in the past six years
has had, any obligation or liability with respect to any defined benefit plan
subject to Title IV of ERISA. All contributions, premium payments and other
payments due from the Company to or under the Benefit Plans have been paid in a
timely manner and all contributions have been and are deductible for income tax
purposes, and no such contributions or deductions have been challenged or
disallowed by any governmental entity or other tribunal.




(f)  Except as
set forth in Section
6.08(f)of the Company Disclosure Schedule, the Company has not engaged
in, and, to the Company’s Knowledge, no fiduciary of any Benefit Plan has
engaged in, any transaction in violation of Section 406 of ERISA or any
“prohibited transaction” (within the meaning of Section 4975 of the Code) for
which no exemption exists under ERISA or the Code.  No liability,
claim, investigation, audit, action or litigation has been incurred, made,
commenced or, to the Company’s Knowledge, threatened (other than routine claims
for benefits) with respect to any Benefit Plan.




(g)  The
Company does not maintain or contribute to any employee benefit plan which
provides, and has no liability or obligation to provide, life insurance, medical
or other employee welfare benefits to any employee (or such employee’s
beneficiary) upon such employee’s retirement or termination of employment,
except as may be required by federal, state or local laws, rules or
regulations.




(h)  Each
Benefit Plan which is a “group health plan” as defined in Section 5000(b)(1) of
the Code has been operated in material compliance with the requirements of
Section 4980B of the Code and Sections 601 through 608 of ERISA (COBRA), and
each Benefit Plan, to the extent applicable, is in material compliance with the
privacy, security and other provisions of the Health Insurance Portability and
Accountability Act of 1996.




(i)  Each
Benefit Plan which is a nonqualified deferred compensation plan, within the
meaning of Section 409A of the Code, maintained by the Company or any ERISA
Affiliate on or after January 1, 2005, has been operated in good faith
compliance with the requirements of Section 409A of the Code (or an available
exemption therefrom).






26


(j)  The
Transactions will not result in any increase in liability of Parent with respect
to any Benefit Plan (including under any employment, retention, severance,
change in control or similar agreement or plan).




(k)  Prior to
the Closing Date, no Cap Rock Entity will terminate the employment of any
officer employed by a Cap Rock Entity other than for cause or due to death,
disability or failure to perform.




(l)  Section 6.08(l) of
the Company Disclosure Letter sets forth a list by individual of any outstanding
obligations of any Cap Rock Entity under any deferred compensation
plans.




(m)  Neither
the Company nor any ERISA Affiliate has announced any plan or legally binding
commitment to create any additional Benefit Plans or to amend or modify any
existing Benefit Plan except as otherwise required by law.




(n)  The
Company has substantially performed all material obligations required to be
performed by it under ERISA, the Code and any other applicable state, federal or
foreign law and under the terms of each Benefit Plan. To the Company’s Knowledge
there is no, and the Company has received no written notice with respect to the
existence of any, material default or violation by any Party of any of such
laws, terms, or requirements applicable to any of the Benefit Plans. In
addition, to the Company’s Knowledge there is no, and the Company has received
no written notice with respect to the existence of any, pending investigation or
pending enforcement action by the Pension Benefit Guaranty Corporation, the
Department of Labor, the IRS or any other governmental agency with respect to
any of the Benefit Plans. The Company has delivered to Parent copies of all
correspondence with the Internal Revenue Service, the Department of Labor, the
Pension Benefit Guaranty Corporation, or any other federal or state government
agency regarding any Benefit Plan.




(o)  (i)
Neither the Company nor any ERISA Affiliate has engaged in any transaction that
may result in the imposition of any material excise tax under Sections 4971
through 4980E of the Code or (ii) otherwise incurred any material liability for
any excise tax, other than excise taxes that have been paid or have otherwise
been disclosed to Parent.




(p)  Other
than routine claims for benefits, the Company has not received any written
notice of any pending material claims or lawsuits which have been asserted or
instituted against any of the Benefit Plans, the assets of the trust or funds
under the Benefit Plans, the sponsor or administrator of any of the Benefit
Plans, or against any fiduciary of any of the Benefit Plans with respect to the
operation of such Plan. Company has delivered to Parent copies of all material
correspondence regarding any pending or threatened material claim against any
Benefit Plan or the Company or any ERISA Affiliate regarding any material matter
related to any Benefit Plan, other than routine claims for
benefits.






27


SECTION
6.09.  Certain Contracts and
Arrangements.  (a)  Except for (1) Easements, Real
Property Leases and Franchises, and (2) Business Agreements listed on Schedule1.01-A, as of the date of
this Agreement there is not any Business Agreement that is:




(i)  a written
employment agreement or employment contract that has an aggregate future
liability in excess of $85,000 and is not terminable by the Company or another
Cap Rock Entity by notice of not more than 60 days for a cost of less than
$85,000;




(ii)  a
collective bargaining agreement or other Contract with any labor organization,
union or association;




(iii)  a
covenant not to compete (other than pursuant to any radius restriction contained
in any lease, reciprocal easement or development, construction, operating or
similar agreement) that materially limits the conduct of the Business as
presently conducted;




(iv)  a
Contract with (A) any shareholder or Affiliate of the Company or another Cap
Rock Entity or (B) any current or former officer, director, partner, or member
of the Company or another Cap Rock Entity or any of its Affiliates (other than
employment agreements covered by clause (i) above);




(v)  a lease
or sublease or similar Contract material to the Business under which the Company
or another Cap Rock Entity is a lessor or sublessor of, or makes available for
use to any Person, (A) any Owned Real Property or any Leased Real Property or (B) any portion of any
premises otherwise occupied by a Cap Rock Entity;




(vi)  a lease,
sublease or similar Contract under which (A) the Company or another Cap Rock
Entity is lessee of, or holds or uses, any machinery, equipment, vehicle or
other tangible personal property owned by any Person or (B) any Cap Rock Entity
is a lessor or sublessor of, or makes available for use by any Person, any
tangible personal property owned or leased by the Company or another Cap Rock
Entity, in any such case has an aggregate future liability or receivable, as the
case may be, in excess of $170,000 and is not terminable by the Company or
another Cap Rock Entity by notice of not more than 60 days for a cost of less
than $170,000;




(vii)  (A)
a continuing Contract for the future purchase of materials, supplies or
equipment (other than purchase orders for electricity in the ordinary course of
business consistent with past practice), (B) a management, service, consulting
or other similar Contract or (C) an advertising agreement or arrangement, in any
such case that has an aggregate future liability to any Person in excess of
$170,000  and is not terminable by the Company or another Cap Rock
Entity by notice of not more than 60 days for a cost of less than
$170,000;






28


(viii)  (A)
a Contract under which the Company or another Cap Rock Entity has borrowed any
money from, or issued any note, bond, debenture or other evidence of
Indebtedness to, any Person or (B) any other note, bond, debenture or other
evidence of Indebtedness issued to any Person;




(ix)  a
license, sublicense, option or other Contract relating in whole or in part to
the Company’s or another Cap Rock Entity’s Intellectual Property Rights
(including any license or other Contract under which the Company or another Cap
Rock Entity is licensee or licensor of any Intellectual Property Rights) that
has an aggregate future liability to any Person in excess of $50,000 and is not
terminable by the Company or another Cap Rock Entity by notice of not more than
60 days for a cost of less than $50,000;




(x)  a
Contract (including any so-called take-or-pay or keepwell agreement) under which
(A) any Person has directly or indirectly guaranteed Indebtedness, liabilities
or obligations of the Company or another Cap Rock Entity or (B) the Company or
another Cap Rock Entity has directly or indirectly guaranteed Indebtedness,
liabilities or obligations of any other Person (in each case other than
endorsements for the purpose of collection in the ordinary course of
business);




(xi)  a
Contract under which the Company or another Cap Rock Entity has, directly or
indirectly, made any advance, loan, extension of credit or capital contribution
to, or other investment in, any Person (other than the Company or another Cap
Rock Entity and other than extensions of trade credit in the ordinary course of
the Business), in any such case that, individually, is in excess of
$50,000;




(xii)  a
Contract granting an Encumbrance (other than Permitted Encumbrances) upon any
Owned Real Property or Leased Real Property or other material
asset;




(xiii)  a
Contract made outside the ordinary course of the Business providing for
indemnification of any Person (other than a Cap Rock Entity) with respect to
liabilities relating to any current or former business of the Company or another
Cap Rock Entity or any predecessor Person;




(xiv)  a power
of attorney;




(xv)  a
confidentiality agreement other than the Confidentiality Agreement;






29


(xvi)  a
Contract (including any purchase order), involving payment by the Company or
another Cap Rock Entity of more than $5,000,000 (unless terminable without
payment or penalty upon no more than 60 days’ notice);




(xvii)  a
Contract (including any sales order) involving the obligation of the Company or
another Cap Rock Entity to deliver products or services for payment of more than
$1,600,000 (unless terminable without payment or penalty upon no more than 60
days’ notice);




(xviii)  a
Contract for the sale of any material asset (other than inventory sales in the
ordinary course of business) or the grant of any preferential rights to purchase
any such material asset;




(xix)  a
currency exchange or interest rate exchange Contract;




(xx)  a
Contract for any joint venture, partnership or similar arrangement;




(xxi)  any other
Contract that has an aggregate future liability to any Person (other than the
Company or another Cap Rock Entity) in excess of $170,000 and is not terminable
by the Company or another Cap Rock Entity by notice of not more than 60 days for
a cost of less than $170,000 (other than purchase orders and sales
orders);




(xxii)  a
Contract under which a Cap Rock Entity agrees or is obligated to purchase
electric energy;




(xxiii)  a
Financial Hedge; or




(xxiv)  a
Contract other than as set forth above to which the Company or another Cap Rock
Entity is a party or by which it or any of its assets or businesses is bound or
subject that is material to the Business.




(b)  Each of
the Material Business Agreements constitutes a valid and binding obligation of
the Company or applicable Cap Rock Entity and, to the Company’s Knowledge,
constitutes a valid and binding obligation of the other parties thereto and is
in full force and effect, except where the impact of such lack of validity or
binding nature, individually or in the aggregate, has not had and would not
reasonably be expected to have a Cap Rock Material Adverse
Effect.  None of the Company or other Cap Rock Entities is in breach
or default (nor has any event occurred which, with notice or the passage of
time, or both, would constitute such a breach or default) under, or has received
written notice that it is in breach or default under, any Material Business
Agreement, except for such breaches or defaults as to which requisite waivers or
consents have been obtained or which individually or in the aggregate, have not
had and would not reasonably be expected to have a Cap Rock Material Adverse
Effect.






30


(c)  To the
Company’s Knowledge, no other party to any Material Business Agreement is in
breach or default (nor has any event occurred which, with notice or the passage
of time, or both, would constitute such a breach or default) under any Material
Business Agreement except such breaches or events of default which, individually
or in the aggregate, have not had and would not reasonably be expected to have a
Material Adverse Effect.




(d)  Section 6.09(d)of
the Company Disclosure Letter sets forth a list of each municipal, county or
tribal franchise agreement relating to the Business to which the Company or
another Cap Rock Entity is a party (the “Franchises”), and to
the Company’s Knowledge such Franchises constitute all the franchise agreements
required for the operation of the Business as presently
conducted.  The Company or another Cap Rock Entity is not in default
in any material respect under such Franchises, and, to the Company’s Knowledge,
each such Franchise is in full force and effect.




(e)  Section 6.09(e) of
the Company Disclosure Letter lists each agreement, contract or other
arrangement, other than the Benefit Plans, between the Company or any other Cap
Rock Entity, on the one hand, and any advisor, advisory director, consultant or
independent contractor of any Cap Rock Entity, on the other hand, the amount of
which exceeds $85,000.  Other than any such agreement, contract or
other arrangement to be terminated pursuant to Section 8.15, Section 9.02(h) or
Section
9.02(i), each such agreement, contract or other arrangement was
negotiated on an arms-length basis and is no less favorable to the Company or
such other Cap Rock Entity than the Company or such other Cap Rock Entity could
have obtained from an unaffiliated third party.




(f)  Section 6.09(f) of
the Company Disclosure Letter lists all bank accounts and investment accounts of
each Cap Rock Entity.




(g)  Section 6.09(g) of
the Company Disclosure Letter sets forth a list, as of the date of this
Agreement, of all material arrangements under which any Cap Rock Entity is
required to provide security or guarantees for the performance of obligations of
the Business.




SECTION
6.10.  Legal Proceedings and
Orders.  There are no Claims relating to any Cap Rock Entity or
the Business which are pending or, to the Company’s Knowledge, threatened
against any Cap Rock Entity which, individually or in the aggregate, have had or
would reasonably be expected to have a Cap Rock Material Adverse
Effect.  Except for any Regulatory Orders, neither any Cap Rock Entity
nor the Business is subject to any outstanding Orders that would reasonably be
expected to apply to the Business following the Closing that would reasonably be
expected to have a Cap Rock Material Adverse Effect.






31


SECTION
6.11.  Permits.  Section 6.11 of
the Company Disclosure Letter sets forth a list of all material Permits held by
any Cap Rock Entity as of the date of this Agreement in connection with such Cap
Rock Entity’s operation of the Business as presently
conducted.  Except as disclosed in Section 6.11 of the
Company Disclosure Letter, there are no Permits required by any Cap Rock Entity
for the operation of the Business, other than those Permits the failure to have,
individually or in the aggregate, has not had and would not reasonably be
expected to have a Cap Rock Material Adverse Effect.  None of the Cap
Rock Entities has received any written notification since December 31, 2006 from
any Governmental Entity exercising regulatory jurisdiction over such Cap Rock
Entity or the Business that it is in violation of any such Permit, except
notifications of violations which, individually or in the aggregate, have not
had and would not reasonably be expected to have a Cap Rock Material Adverse
Effect.  Each Cap Rock Entity is in compliance with all such Permits,
except where such non-compliance, individually or in the aggregate, has not had
and would not reasonably be expected to have a Cap Rock Material Adverse
Effect.  There are no ongoing proceedings before any Business
Regulatory Entity or inquiries, investigations, proceedings or appeals pending
for the amendment, termination or revocation of any Permit or for the
determination of compliance therewith or with any Law or Order applicable to the
Business, which, individually or in the aggregate, have had and would reasonably
be expected to have a Cap Rock Material Adverse Effect.




SECTION
6.12.  Compliance with
Laws.  Each Cap
Rock Entity is in compliance with all applicable Laws and Orders, except where
the failure to be in compliance, individually or in the aggregate, has not had
and would not reasonably be expected to have a Cap Rock Material Adverse
Effect.




SECTION
6.13.  Insurance.  Since
December 31, 2006, (a) the Cap Rock Entities have been continuously insured with
financially sound insurers or through their self-insurance program in such
amounts and against such risks and losses as are customary in the electric
utility industry, and (b) none of  the Cap Rock Entities has received
any written notice of cancellation or termination with respect to any material
insurance policy of such Cap Rock Entity providing such coverage.  All
insurance policies of the Cap Rock Entities with third-party insurance carriers
are in full force and effect.




SECTION
6.14.  Taxes.




(a)  Except as
set forth in Section
6.14(a) of the Company Disclosure Letter, all income and other material
Tax Returns required to be filed by or on behalf of the Cap Rock Entities have
been timely filed or requests for extensions have been timely filed and any such
extensions have been granted and have not expired.  Each such Tax
Return was true, complete and correct in all respects and were prepared in
substantial compliance with all applicable laws and regulations.  All
Taxes due and owing by the Cap Rock Entities (whether or not shown on any Tax
Return) have been fully and timely paid.  None of the Cap Rock
Entities currently is the beneficiary of any extension of time within which to
file any Tax Return.  Since January 1, 2003, no claim has been made by
any Taxing Authority in a jurisdiction where a Cap Rock Entity does not file a
Tax Return that such Cap Rock Entity is or may be subject to taxation by that
jurisdiction.  There are no liens for Taxes (other than Taxes not yet
due and payable) upon any of the assets of the Cap Rock Entities.






32


(b)  Each Cap
Rock Entity has withheld and paid all Taxes required to have been withheld and
paid in connection with any amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party.




(c)  None of
the Cap Rock Entities has engaged in a “listed transaction” as defined in
Treasury Regulation Section 1.6011-4(b).




(d)  None of
the Cap Rock Entities is party to or bound by any written tax sharing agreement,
tax indemnity obligation or similar agreement, arrangement or practice with
respect to Taxes (including any advance pricing agreement, closing agreement or
other agreement relating to Taxes with any taxing authority) (“Tax Sharing
Agreement”), other than Tax Sharing Agreements that relate to the Taxes
of the members of the consolidated tax group of which Company is the parent, and
the parties to which consist solely of the Cap Rock Entities.




(e)  No
foreign, federal, state, or local tax audits or administrative or judicial Tax
proceedings are being conducted with respect to any of the Cap Rock
Entities.  None of the Cap Rock Entities has received from any
foreign, federal, state, or local Taxing Authority (including jurisdictions
where Company or its Subsidiaries have not filed Tax Returns) any (i) notice
indicating an intent to open an audit or other review, which audit or review is
not yet completed, (ii) request for information related to Tax matters, which
request has not been satisfied, or (iii) notice of deficiency or proposed
adjustment for any amount of Tax proposed, asserted, or assessed by any taxing
authority against any of the Cap Rock Entities where any issues therein are
still pending.  CES has delivered or made available to Parent correct
and complete copies of all income Tax Returns filed since January 1, 2003, and
all examination reports, and statements of deficiencies assessed against,
affecting or agreed to by any of the Cap Rock Entities that have been received
with respect to such Tax Returns.




(f)  No
statute of limitations in respect of Taxes payable by any of the Cap Rock
Entities has been waived and no one has agreed to any extension of time with
respect to a Tax assessment or deficiency relating to Taxes payable by any of
the Cap Rock Entities.




(g)  None of
the Cap Rock Entities is a party to any agreement, contract, arrangement or plan
that has resulted or could result, separately or in the aggregate, in the
payment of (i) any “excess parachute payment” within the meaning of Code §280G
(or any corresponding provision of state, local or foreign Tax law) and (ii) any
amount that will not be fully deductible as a result of Code §162(m) (or any
corresponding provision of state, local or foreign Tax law).  Since
January 1, 2003, none of the Cap Rock Entities (A) has been a member of an
affiliated group filing a consolidated federal income Tax Return (other than a
group the common parent of which was the Company) or (B) has any Liability for
the Taxes of any Person under Reg. §1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or
otherwise.






33


(h)  There are
currently no limitations on the net operating losses, net capital losses, or
credits of any of the Cap Rock Entities, including under Sections 382, 383, 384
or 269 of the Code.




(i)  The
unpaid Taxes of the Cap Rock Entities did not, as of the most recent fiscal
month end, exceed the reserve for Tax Liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) set forth on the most recent balance sheet delivered to
Parent.




(j)  Since
January 1, 2006, none of the Cap Rock Entities has distributed stock of another
Person, or has had its stock distributed by another Person, in a transaction
that was purported or intended to be governed in whole or in part by Section 355
of the Code.




(k)  None of
the Cap Rock Entities will be required to include any item of income in, or
exclude any item of deduction from, taxable income for any taxable period (or
portion thereof) ending after the Closing Date as a result of any:




(i)  change in
method of accounting for a taxable period ending on or prior to the Closing
Date;




(ii)  “closing
agreement” as described in Code §7121 (or any corresponding or similar provision
of state, local or foreign income Tax law) executed on or prior to the Closing
Date;




(iii)  Intercompany
transaction or excess loss account described in Treasury Regulations under Code
§1502 (or any corresponding or similar provision of state, local or foreign
income Tax law) that occurred on or prior to the Closing Date;




(iv)  Installment
sale or open transaction disposition made on or prior to the Closing Date;
or




(v)  Prepaid
amount received on or prior to the Closing Date outside the ordinary course of
business.




SECTION
6.15.  Fees and
Commissions.  No broker, finder, or other Person is entitled to
any brokerage fees, commissions, or finder’s fees for which Parent could become
liable or obligated in connection with the Transactions by reason of any action
taken by any Cap Rock Entity.




SECTION
6.16.  Intellectual
Property.  (a)  The Company or another Cap Rock
Entity owns, or is validly licensed or otherwise has the right to use, all
patents, patent rights, trademarks, trademark rights, trade names, trade name
rights, service marks, service marks rights, copyrights and other proprietary
intellectual property rights and computer programs (“Intellectual Property
Rights”) that are material to the conduct of the
Business.Section 6.16 of
the Company Disclosure Letter sets forth a description of all Intellectual
Property Rights, if any, which are material to the conduct of the Business,
including all software, software licenses, information systems, interfaces and
management systems used in the Business.  No claims are pending or, to
the Company’s Knowledge, threatened that any Cap Rock Entity is infringing or
otherwise adversely affecting the rights of any Person with regard to any
Intellectual Property Right, except for claims that, individually or in the
aggregate, have not had and would not reasonably be expected to have a Cap Rock
Material Adverse Effect.  To the Company’s Knowledge, no Person is
infringing the rights of any Cap Rock Entity with respect to any Intellectual
Property Right, except for infringements that, individually or in the aggregate,
have not had and would not reasonably be expected to have a Cap Rock Material
Adverse Effect.






34


(b)  The
Company or other Cap Rock Entity has terminated effective as of no later than
December 31, 2007 all managed services agreements, consulting services
agreements and any related Contracts with Delinea Corporation or its successors
or assigns in accordance with the terms of such agreements or Contracts, and no
Cap Rock Entity has any further obligations or liabilities to Delinea
Corporation or its successors or assigns.




SECTION
6.17.  Inspections.  The
Company acknowledges and agrees that the representations and warranties set
forth in Article
VII constitute the sole and exclusive representations and warranties of
Parent or Sub to the Company in connection with the Transactions, and there are
no other representations, warranties, covenants, understandings or agreements,
oral or written, in relation thereto among the Parties other than those
incorporated herein.




SECTION
6.18.  Absence of Certain Changes
or Events; Major Customers.(a)  From September 30,
2007, to the date of this Agreement, there has not been any event, change or
occurrence that, individually or in the aggregate, has had or would be
reasonably likely to have a material adverse change in the business, assets,
properties, results of operations, or financial condition of the Business, taken
as a whole.  Since January 1, 2007, the Company has caused the
Business to be conducted in the ordinary course and in all material respects in
the same manner as previously conducted and has made all reasonable efforts
consistent with past practices to preserve the relationships of the Business
with customers, suppliers and others with whom the Business deals.




(b)  Between
the date of the Interim Company Balance Sheet and the date of this Agreement, no
Major Customer has (i) cancelled, suspended or otherwise terminated its
relationship with the Company in respect of the Business or (ii) to the
Company’s Knowledge, advised the Company of its intention to (A) cancel, suspend
or otherwise terminate its relationship with the Company in respect of the
Business, (B) materially and adversely change the terms (including pricing) upon
which it pays for electricity and other goods and services from the Business or
(C) materially reduce the volume of its purchases of electricity and other goods
and services from the Business.  For purposes of this Section 6.18(b), the
“Major
Customers” are the 25 largest customers of the Business, by gross margin,
as computed in the Company Financial Statements, for the 12-month period ended
on the date of the Interim Company Balance Sheet.






35


SECTION
6.19.  Regulatory
Compliance.  (a) Since December 31, 2006,
the Company and each other Cap Rock Entity have filed or caused to be filed with
each of the PUCT, ERCOT, SPP and FERC (whether or not in connection with the
regulation of such Cap Rock Entity as a utility) and any other Governmental
Entity exercising jurisdiction over any Cap Rock Entity as a utility
(each of PUCT, ERCOT, SPP, FERC and such other Governmental Entity, a
“Business Regulatory
Entity”) all
material forms, statements, reports and documents (including all exhibits,
amendments and supplements thereto) required by applicable Law or Order to be
filed by the Company or such other Cap Rock Entity in connection with the
conduct or operation of the Business.Section
6.19 of the Company Disclosure Letter sets forth the regulatory filings
(other than those periodic filings required to be filed in the ordinary course
of business) and Business Regulatory Proceedings that are pending or that the
Company or other Cap Rock Entity has been ordered by a Business Regulatory
Entity as of the date of this Agreement to make or initiate in the future,
including those relating to operating tariffs or rates charges, or to be
charged, including under special contracts, the subject matter of each filing or
Business Regulatory Proceeding, and the date by which the Company or other Cap
Rock Entity intends to make or initiate, or has been ordered to make or
initiate, such filings or Business Regulatory Proceedings, in each case, in
connection with the conduct or operation of the Business.  Since
December 31, 2006, all charges that have been made by any Cap Rock Entity for
service or electric power and all related fees have, in all material respects,
been charged in accordance with the terms and conditions of valid and effective
tariffs, approved and enforceable special contracts or contracts filed with the
PUCT.  No rates which have been or are being collected in connection
with the Business are subject to refund, pending final resolution of any
proceeding, inquiry, appeal or investigation before any Governmental
Entity.




(b) Section 6.19(b) of
the Company Disclosure Letter lists as of the date of this Agreement all of the
tariffs filed with respect to, or applicable to, the business of any Cap Rock
Entity and all agreements to provide service on non-tariff terms, and complete
and correct copies of all such tariffs and agreements have been provided to
Parent. All charges that have been made for service and all related fees have
been charged in accordance with the terms and conditions of valid and effective
tariffs or valid and enforceable agreements for non-tariff charges.




SECTION
6.20.  Title to
Properties.  (a)  Each Cap Rock Entity (i) owns, and
has insurable, good and marketable fee simple title to, its Owned Real Property,
(ii) owns, and has good and marketable rights and title to the easements,
license agreements (including railroad crossing rights), rights-of-way, and
leases for rights-of-way (collectively, “Easements”), which relate to the
Business, (iii) to the Company’s Knowledge, has a valid and enforceable
leasehold interest in the Leased Real Property and (iv) has good title to the
other assets in the Business, in each case, free and clear of all Encumbrances
other than Permitted Encumbrances.




(b)  Except
as has not had or would not reasonably be expected to have a Cap Rock Material
Adverse Effect, (i) each Cap Rock Entity has complied with the terms of all Real
Property Leases and Easements to which it is a party or under which it has a
right of use or occupancy, (ii) all Real Property Leases and Easements are in
full force and effect, and (iii) each Cap Rock Entity enjoys peaceful and
undisturbed possession under all such Real Property Leases and
Easements.






36


(c)  Except as
has not interfered and would not reasonably be expected to interfere with the
conduct of the Business in any material respect, the Company and each other Cap
Rock Entity has the necessary rights to construct, maintain and use its lines,
poles, wires and other equipment and facilities on, under, and over property,
whether or not pursuant to an Easement, used in the conduct of the Business, and
there are no defects in the entitlement of the Company or any other Cap Rock
Entity to construct, maintain or use such property that have prohibited or
interfered with or that are reasonably likely to prohibit or interfere with the
use thereof in any material respect in accordance with past practice or the
requirements of applicable Law.




SECTION
6.21.  Sufficiency of
Assets.  The Cap Rock Entities have all properties, rights and
assets necessary for the conduct of the Business and operations as presently
conducted and sufficient for the conduct of the Business immediately and without
interruption following the Closing in substantially the same manner as presently
conducted.  No asset necessary for the conduct of the Business is
owned by any Affiliate (other than another Cap Rock Entity).




SECTION
6.22.  Other
Activities.  Neither the Company nor Cap Rock Intermediate has
engaged since its formation, or engages in, any business or activity other than,
in the case of the Company, its acquisition of ownership of and investment in
all the issued and outstanding shares of capital stock of Cap Rock Energy and of
Cap Rock Intermediate, and in the case of Cap Rock Intermediate, its ownership
of and investment in all the issued and outstanding shares of capital stock of
Cap Rock Energy.  The Company and other Cap Rock Entities have no
liability or obligation (contingent or otherwise) relating to, arising out of or
resulting from the acquisition and ownership by the Company of SEMCO or the
distribution or dividend of SEMCO to the Company’s shareholders or
Affiliates.  Except as expressly disclosed to Parent in this Agreement
or in the Company Disclosure Letter, or arising under this Agreement, neither
the Company nor Cap Rock Intermediate has any other liabilities, including,
without limitation, any contingent liabilities, other than Taxes, corporate
registration or qualification expenses, or liabilities arising out of or in
connection with the Business.  Cap Rock Energy and NewCorp do not
engage in any business or activity other than the Business.




SECTION
6.23.  Bankruptcy.  No
petition in bankruptcy or any petition or answer seeking any assignment for the
benefit of creditors, the appointment of a receiver or trustee, liquidation,
dissolution or similar relief under the United States Bankruptcy Code or any
similar state law has been filed by or against any Cap Rock
Entity.  No Cap Rock Entity has made any general assignment of its
property for the benefit of its creditors.  No proceeding has been
instituted for the dissolution or liquidation of any Cap Rock
Entity.




SECTION
6.24.  Absence of Certain
Payments.  None of the Cap Rock Entities, or any officer,
manager, agent or other Person acting on behalf of any Cap Rock Entity, has
directly or indirectly, made contributions, gifts, or payments relating to any
political activity or solicitation of business which was prohibited by law or,
on behalf of any Cap Rock Entity, made any direct or indirect unlawful payment
to any governmental official or employee or established or maintained any
unlawful or unreported funds.  No Cap Rock Entity, or any officer,
manager, agent or other Person acting on behalf of any Cap Rock Entity, has
accepted or received any unlawful contribution, payment, gift, entertainment or
expenditure.







37




ARTICLE
VII




REPRESENTATIONS
AND WARRANTIES OF PARENT AND SUB




Parent
and Sub represent and warrant to the Company, as of the date of this Agreement
and as of the Effective Time, as set forth in this Article
VII:




SECTION
7.01.  Organization,
Qualification.  Each of Parent and Sub is duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is organized and has all requisite corporate or limited liability
company power and authority to own, lease and operate its properties and assets
and to carry on its business as presently conducted.  Each of Parent
and Sub is duly qualified or licensed to do business as a foreign corporation or
limited liability company, as the case may be, and is in good standing in each
jurisdiction in which the conduct of its business requires such qualification,
except where the failure to be so qualified has not had and would not reasonably
be expected to have a Parent Material Adverse Effect.  Parent has
heretofore made available to the Company true, complete, and correct copies of
the Governing Documents of each of Parent and Sub, as currently in
effect.




SECTION
7.02.  Authority Relative to this
Agreement.  Parent and Sub have all corporate and limited
liability company (as applicable) power and authority necessary to execute and
deliver this Agreement and to consummate the Transactions.  The
execution and delivery of this Agreement and the consummation of the
Transactions have been duly and validly authorized by the board of directors of
Parent and the sole manager of Sub and no other proceedings on the part of
Parent or Sub are necessary to authorize this Agreement or to consummate the
Transactions.  This Agreement has been duly and validly executed and
delivered by Parent and Sub, and constitutes the valid and binding agreement of
Parent and Sub, enforceable against Parent and Sub in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, or other similar laws affecting or relating to
enforcement of creditors’ rights generally or general principles of equity
(regardless of whether enforcement is considered in a proceeding at law or in
equity).




SECTION
7.03.  Consents and Approvals; No
Violation.  Except as set forth in Schedule 7.03, the
execution and delivery of this Agreement by Parent and Sub, and the consummation
by Parent and Sub of the Transactions, do not:






38


(a)  conflict
with or result in any breach of the Governing Documents of Parent or
Sub;




(b)  result in
a default (including with notice, lapse of time, or both), or give rise to any
right of termination, cancellation, or acceleration under any of the terms,
conditions, or provisions of any note, bond, mortgage, indenture, agreement,
lease, or other instrument or obligation to which Parent or Sub is a party or by
which Parent or Sub or any of their respective assets may be bound, except for
such defaults (or rights of termination, cancellation, or acceleration) as to
which requisite waivers or consents have been, or will prior to the Effective
Time be, obtained or which if not obtained or made, individually or in the
aggregate, have not had and would not reasonably be expected to have a Parent
Material Adverse Effect;




(c)  subject
to obtaining the Parent Required Regulatory Approvals, violate any Law or Order
applicable to Parent or Sub or any of their assets which, individually or in the
aggregate, has had or would reasonably be expected to have a Parent Material
Adverse Effect; or




(d)  require
any declaration, filing, or registration with, or notice to, or authorization,
consent, or approval of any Governmental Entity, other than (i) the Parent
Required Regulatory Approvals or (ii) such declarations, filings,
registrations, notices, authorizations, consents, or approvals which, if not
obtained or made, would not, individually or in the aggregate, prevent or
materially delay the consummation of the Transactions.




SECTION
7.04.  Parent’s
Knowledge.  Parent represents that it is a sophisticated
party.  Parent understands and agrees that, any financial forecasts or
projections (other than the Pro Forma Balance Sheet pursuant to Section 5.04)
relating to the Business prepared by or on behalf of CES or the Company have
been provided to Parent with the understanding and agreement that neither CES
nor the Company is making any representation or warranty with respect to such
forecasts or projections and that actual future results may vary from such
forecasts or projections based upon numerous factors.




SECTION
7.05.  Inspections.  Parent
is knowledgeable about the Business as engaged in by the Company and any other
Cap Rock Entities and of the usual and customary practices of companies engaged
in businesses similar to the Business.  Parent acknowledges and agrees
that the representations and warranties set forth in Article VI constitute
the sole and exclusive representations and warranties of the Company to Parent
and that the representations and warranties set forth in Article V constitute
the sole and exclusive representations and warranties of CES to Parent, in each
case, in connection with the Transactions, and there are no other
representations, warranties, covenants, understandings or agreements, oral or
written, in relation thereto between the Parties other than those incorporated
herein.  Except for the representations and warranties expressly set
forth in Articles V and VI, Parent disclaims reliance on any
representations or warranties either express or implied, by or on behalf of the
Company or on any other Cap Rock Entity or their Affiliates or
Representatives.






39


ARTICLE
VIII




COVENANTS
OF THE PARTIES




SECTION
8.01.  Conduct of
Business.  (a)  Except as expressly contemplated in
this Agreement, or otherwise described in Section 8.01(a) of
the Company Disclosure Letter, during the period from the date of this Agreement
to the Closing Date, the Company will operate the Business in the ordinary
course consistent with Good Utility Practice and will use commercially
reasonable efforts to preserve intact the Business, and to preserve the goodwill
and relationships with customers, suppliers, and others having business dealings
with the Business.  Without limiting the generality of the foregoing,
except as expressly contemplated in this Agreement, or otherwise described in
Section 8.01(a)
of the Company Disclosure Letter, prior to the Closing Date, without the prior
written consent of Parent (which will not be unreasonably withheld or delayed),
the Company will not, and will not permit any other Cap Rock Entity
to:




(i)  create,
incur, assume, or suffer to exist any Encumbrance (other than Permitted
Encumbrances) upon any asset of any Cap Rock Entity;




(ii)  make any
material change in the level of inventories customarily maintained with respect
to the Business, other than in the ordinary course of business and consistent
with Good Utility Practice;




(iii)  other
than any such sales, leases, transfers, or dispositions involving less than
$85,000 on an individual basis, or $500,000 in the aggregate, sell, lease (as
lessor), transfer, or otherwise dispose of any asset of any Cap Rock Entity,
other than in the ordinary course of business, and consistent with Good Utility
Practice, and other than assignment or sale of the SEMCO Note to CES for the
face amount plus accrued but unpaid interest;




(iv)  other
than in the ordinary course of business or consistent with Good Utility
Practice, (A) enter into, terminate, extend, renew, or otherwise amend any
Material Business Agreement, or (B) waive any material default by, or
release, settle, or compromise any material claim against, any other Person who
is a party thereto;




(v)  grant
severance or termination pay to any present, future, or former employee of the
Business;




(vi)  cancel
(or suffer the cancellation of) any property, liability, casualty, or other
insurance policies, or fail to maintain by self insurance, or with financially
responsible insurance companies, insurance in such amounts and against such
risks and losses as are consistent with Good Utility Practice and customary for
the Business;




(vii)  change,
in any material respect, its accounting methods or practices, credit practices,
collection policies, or investment, financial reporting, or inventory practices
or policies or the manner in which the books and records of the Business are
maintained;






40


(viii)  (A) grant
any increase in the compensation of, (B) grant or agree to any bonus for or
(C) except in compliance with applicable Law, adopt, enter into, terminate
or amend any Benefit Plan covering any Company Employee not covered by
collective bargaining;




(ix)  hire any
employee other than, in consultation with Parent, persons who are hired in order
to meet a reasonable need;




(x)  enter
into any Financial Hedge;




(xi)  make or
commit to make any capital expenditure or capital expenditures that,
individually, is in excess of $250,000 or, in the aggregate, are in excess of
$1,500,000, other than in connection with the Capital Expenditure
Budget;




(xii)  transfer
or assign any shares of capital stock or equity interests (or member interests)
in any Cap Rock Entity to any other Person;




(xiii)  issue or
assume any Voting Company Debt, or issue any shares of capital stock, equity
interests or member interests, or any options, warrants, rights, convertible or
exchangeable securities or undertakings of any kind obligating any Cap Rock
Entity to issue, deliver or sell shares of capital stock, equity interests or
member interests or any security convertible or exchangeable for or into any
capital stock or other equity interests or member interests other than pursuant
to the exercise of Company Stock Options outstanding on the date
hereof;




(xiv)  redeem or
repurchase any shares of stock of any Cap Rock Entity, acquire shares of capital
stock or equity interests in any other Person, enter into any share exchange, or
merge or consolidate with or into any other Person, or enter any joint venture,
partnership, or limited liability company with any other Person;




(xv)  (A) permit any material Permit or
Environmental Permit to lapse, other than in accordance with its terms at the
regular expiration thereof, or (B) fail to apply on a timely basis for any
renewal of any material renewable Permit or Environmental
Permit;




(xvi)  amend its certificate of incorporation
or bylaws; or




(xvii)  agree or
commit to take any action which would be or cause a violation of the
restrictions set forth in Section 8.01(a)(i)
through Section 8.01(a)(xvi).






41


(b)  The
Company shall discuss with Parent any changes and proposed changes in its rates
or charges, standards of service or accounting from those in effect on the date
of this Agreement and consult with and receive the input of Parent prior to
making any filing or application (or, in each case, any amendment thereto), or
effecting any agreement, commitment, arrangement or consent, whether written or
oral, formal or informal, with respect thereto. Except as set forth in Section 8.01(b) of
the Company Disclosure Letter, the Company shall not, without the input and
consent of Parent (such consent not be unreasonably withheld), make any filing
to change its base rates on file with any applicable Business Regulatory Entity
or make any filing that is reasonably likely to have a material effect on its
base rates, except as may be required by applicable Law or valid Business
Regulatory Entity order.




(c)  Until the
Closing Date, in connection with the Business the Company will continue to make,
or cause the Cap Rock Entities to make, capital expenditures (i) at a rate of at
least 85% of the aggregate Capital Expenditure Budget and (ii) otherwise
substantially in accordance with the Capital Expenditure Budget.




(d)  Until the
Closing Date, the Company will continue in all material respects to pay, or
cause the Cap Rock Entities to pay, all fees, expenses and any other amounts
payable or due in respect of any Easement, whether public or private, or any
Franchise or Permit, in each case in respect of the operation of the Business
and whether or not expired or lapsed.




SECTION
8.02.  Access to
Information.  (a)  Between the date of this Agreement
and the Closing Date, the Company will, during ordinary business hours and upon
reasonable notice, (i) give Parent, Parent’s Representatives and its financing
providers (including prospective providers of financing) and their respective
counsel, auditors and other authorized representatives reasonable access to its
assets to which Parent is not denied access by Law and to which the Company has
the right to grant access without the consent of any other Person (and in the
case where consent of another Person is required, only on such terms and
conditions as may be imposed by such other Person); (ii) permit Parent, Parent’s
Representatives and its financing providers (including prospective providers of
financing) and their respective counsel, auditors and other authorized
representatives to make such reasonable inspections thereof as they may
reasonably request; (iii) furnish Parent, Parent’s Representatives and its
financing providers (including prospective providers of financing) and their
respective counsel, auditors and other authorized representatives with such
financial and operating data and other information with respect to the Business
as such Persons may from time to time reasonably request; and (iv) furnish
Parent with a copy of each material report, schedule, or other document relating
to the Business filed by the Company with, or received by the Company from, any
Governmental Entity; provided, however, that (A) any
investigation permitted by this Section 8.02 will be conducted in such a manner
as not to interfere unreasonably with the operation of the Business or any other
Person, (B) the Company or any other Cap Rock Entity will not be required to
take any action which would constitute a waiver of the attorney client
privilege, and (C) the Company need not supply Parent with any information which
the Company is under a contractual or other legal obligation not to
supply.  Notwithstanding anything in this Section 8.02(a) to
the contrary, (x) Parent will not have access to personnel and medical records
if such access could, in the Company’s good faith judgment, subject the Company
to risk of liability or otherwise violate the Health Insurance Portability and
Accountability Act of 1996, and (y) any investigation of environmental matters
by or on behalf of Parent will be limited to visual inspections and site visits
commonly included in the scope of “Phase 1” level environmental inspections, and
Parent will not have the right to perform or conduct any other sampling or
testing at, in, on, or underneath any of the facilities of any Cap Rock
Entity.






42


(b)  Unless
and until the Transactions have been consummated, each Party will, and will
cause its Affiliates and Parent’s Representatives or the Company’s
Representatives, as applicable, to, hold in strict confidence and not use or
disclose to any other Person all Confidential Information, provided, Parent may
make disclosures to its Representatives and to potential financing sources and
ratings agencies on a confidential basis.  As to each Party, “Confidential
Information” means all information in any form heretofore or hereafter
obtained from either Party in connection with such Party’s evaluation of the
Business, the negotiation of this Agreement, or the performance of the covenants
and agreements of this Agreement, whether pertaining to financial condition,
results of operations, methods of operation or otherwise, other than information
that (i) was already in such receiving Party’s or its Representatives’ or, in
the case of Parent, its potential financing sources, possession; provided, however, that such
information is not known by such receiving Party, after due inquiry, to be
subject to another confidentiality agreement with or other obligation of secrecy
to the other Party or any other party, (ii) subsequently becomes generally
available to the public other than as a result of a disclosure by such receiving
Party or its Representatives or, in the case of Parent, its potential financing
sources, in breach of this Section 8.02(b) or
the Confidentiality Agreement or (iii) subsequently becomes available to such
receiving Party on a non-confidential basis from a source other than the other
Party or its Representatives or, in the case of Parent, its potential financing
sources, provided that such
source is not known by such receiving Party, after due inquiry, to be bound by a
confidentiality agreement with or other obligation of secrecy or non-disclosure
to the other Party or any other party.  Notwithstanding the foregoing,
each Party, its Affiliates, its Representatives or, in the case of Parent, its
potential financing sources, may disclose Confidential Information to the extent
that such information is required to be disclosed by it by Law or in connection
with any proceeding by or before a Governmental Entity, including any
disclosure, financial or otherwise, required to comply with any Required
Regulatory Approvals or if requested by any Governmental Entity having
jurisdiction over the Party, its Affiliates, its Representatives or, in the case
of Parent, its potential financing sources.  In the event that a Party
receives a request (whether by oral questions, interrogatories, requests for
documents in legal proceedings, under the terms of a subpoena or order issued by
a court or governmental body or other similar process or otherwise pursuant to
applicable regulation (including stock or exchange) to disclose all or any part
of the Confidential Information, such Party agrees, and shall cause its
Representatives, to promptly notify the other Party of the existence, terms and
circumstances surrounding such a request, so that such other Party may seek, at
its expense, an appropriate protective order and/or waive such notifying Party’s
compliance (or its Representatives’ compliance, as the case may be) with the
provisions of this Section 8.02(b) and
the Confidentiality Agreement (and if such Party seeks such an order, to provide
such cooperation as such Party shall reasonably request).  If
disclosure of such information is required in the opinion of a Party’s counsel
(or its Representatives’ counsel, as the case may be), who shall be reasonably
satisfactory to the other Party, the receiving Party agrees, and shall cause its
Representatives to, exercise commercially reasonable efforts to obtain, at the
other Party’s expense, an order or other reliable assurance that confidential
treatment will be accorded to such of the disclosed information which the other
Party so designates.  In addition, if a protective order is not
obtained, such receiving Party will furnish only that portion of the
Confidential Information which is legally required.  In any event, any
Party or its Representatives may disclose Evaluation Material legally required
to be disclosed without liability hereunder.  If the Transactions are
not consummated, each Party will promptly return to the other Party all copies
of any Confidential Information, including any materials prepared by such Party
or Parent’s Representatives or the Company’s Representatives, as applicable,
incorporating or reflecting Confidential Information, and an officer of such
Party will certify in writing compliance by such Party with the
foregoing.






43


(c)  The
Parties hereby terminate the Confidentiality Agreement.  The
provisions of Section
8.02(b) will survive for a period of two years following the earlier of
(i) the Closing Date or (ii) the termination of this Agreement, except that if
the Closing occurs, the provisions of Section 8.02(b) will
expire with respect to Parent.




(d)  Until the
Closing Date, the Company will deliver to Parent within 60 days of the end of
each fiscal quarter copies of its interim unaudited quarterly consolidated
financial statements and within 90 days of the end of each fiscal year, copies
of its audited annual consolidated financial statements, such quarterly and
annual financial statements to be prepared in accordance with GAAP (except for
normal year-end adjustments and the omission of full footnotes in such quarterly
statements).




SECTION
8.03.  Expenses.  Except
to the extent specifically provided herein, and irrespective of whether the
Transactions are consummated, all costs and expenses incurred in connection with
this Agreement and the Transactions will be borne by the Party incurring such
costs and expenses.  Each of Parent and the Company will be
responsible for payment of 50% of (i) all filing fees in connection with any
Required Regulatory Approvals and (ii) all other filing, recording, transfer, or
other fees or charges of any nature payable pursuant to any provision of Law or
any Order or Franchise.




SECTION
8.04.  Further
Assurances.  Subject to the terms and conditions of this
Agreement, each of the Parties will use commercially reasonable efforts to take,
or cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper, or advisable to consummate and make effective the
Transactions, including using commercially reasonable efforts to obtain
satisfaction of the conditions precedent to each Party’s obligations hereunder
within its reasonable control.  Neither Party will, without the prior
written consent of the other Party, take any action which would reasonably be
expected to prevent or materially impede, interfere with or delay the
Transactions (including the obtaining of the Required Regulatory
Approvals).






44


SECTION
8.05.  Public
Statements.  Each Party will consult with the other prior to
issuing, and will consider in good faith any comments by the other to or in
respect of, any public announcement, statement, or other disclosure with respect
to this Agreement or the Transactions, except as may be required by Law or stock
exchange rules.




SECTION
8.06.  Consents and
Approvals.  (a)  The Company (or its ultimate parent
entity) and Parent will each file or cause to be filed with the Federal Trade
Commission and the United States Department of Justice, Antitrust Division any
notifications required to be filed under the HSR Act and the rules and
regulations promulgated thereunder with respect to the
Transactions.  The Parties will consult and cooperate with each other
as to the appropriate time of filing such notifications and will (i) make such
filings at the agreed upon time, (ii) respond promptly to any requests for
additional information made by either of such agencies, and (iii) use their
commercially reasonable efforts to cause the waiting periods under the HSR Act
to terminate or expire at the earliest possible date after the date of such
filings.




(b)  The
Company and Parent will cooperate with each other and use commercially
reasonable efforts to (i) promptly prepare and file all necessary applications,
notices, petitions, and filings, execute all agreements and documents and
provide all relevant records and reports to the extent required by Law or Order
or to the extent requested by any Governmental Entity for consummation of the
Transactions (including the Required Regulatory Approvals), (ii) obtain the
consents, approvals, and authorizations of all Governmental Entities to the
extent required by Law or Order for consummation of the Transactions (including
the Required Regulatory Approvals), and (iii) obtain all consents, approvals,
and authorizations of all other Persons to the extent necessary to consummate
the Transactions as required by the terms of any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession, Contract,
lease, or other instrument to which the Company or Parent is a party or by which
either of them is bound.  The Company and Parent each will have the
right to review in advance all characterizations of the information relating to
it or the Transactions which appear in any filing made by the other in
connection with the Transactions.




(c)  In
connection with applications and other filings for the Required Regulatory
Approvals, and the prosecution of any pending regulatory proceedings material to
the Business, the Company and Parent shall jointly, and on an equal basis,
coordinate the overall development of the positions to be taken and the
regulatory actions to be requested in such applications and filings for approval
of the matters contemplated by this Agreement which require regulatory approval
and of all other regulatory matters incidental thereto which are to be addressed
in such applications and filings.




(d)  In the
course of obtaining, renewing or securing Franchises as may be deemed necessary
by the Parties in connection with the Transactions, (i) Parent and Sub shall not
be required, to take any action, and the Company or any Cap Rock Entity shall
not take or cause to be taken or agree to commit Parent or Sub to take any
action, in any such case individually or in the aggregate which would
(A) materially impair the ability of Parent or the Surviving Entity to
operate the Business immediately following Closing in a manner substantially
similar to that prevailing with respect to the Business immediately prior to the
date hereof or (B) impose any additional substantially burdensome condition
on Parent or the Surviving Entity.  Any failure or refusal by a
Governmental Entity to renew or award any such Franchise will not constitute a
breach of this Agreement by either Party.






45


(e)  In
connection with any communications, meetings, or other contacts, formal or
informal, oral or written, with any Governmental Entity in connection with the
Transactions or any such declaration, filing, registration, notice,
authorization, consent, or approval, each Party agrees: (i) to inform the other
in advance of any such communication, meeting, or other contact which such Party
proposes or intends to make, including the subject matter, contents, intended
agenda, and other aspects of any of the foregoing; (ii) to consult and cooperate
with the other Party, and to take into account the comments of such other Party
in connection with any of the matters covered by this Section 8.06; (iii)
to arrange for representatives of the other Party to participate to the maximum
extent possible in any such communications, meetings, or other contacts; (iv) to
notify the other Party of any oral communications with any Governmental Entity
relating to any of the foregoing; and (v) to provide the other Party with copies
of all written communications with any Governmental Entity relating to any of
the foregoing.  Notwithstanding the foregoing, nothing in this Section 8.06 will
apply to or restrict communications or other actions by the Company with or with
regard to Governmental Entities in connection with the Business in the ordinary
course of business.




SECTION
8.07.  Transfer
Taxes.  All transfer, documentary, stamp, registration, gross
receipts, compensating, sales and use Taxes, including real property conveyance
Taxes, incurred in connection with this Agreement and the Transactions will be
paid by Parent, and Parent, at its own expense, will file, to the extent
required by applicable Law, all necessary Tax Returns and other documentation
with respect to all such transfer or sales and use Taxes, and, if required by
applicable Law, the Company will join in the execution of any such Tax Returns
or other documentation.




SECTION
8.08.  Company Stock
Options.  Effective as of the Effective Time, each Company
Stock Option shall be cancelled by the Company and each holder thereof shall be
entitled to receive from the Company and the Company shall pay to each holder of
Company Stock Options in respect of each such Company Stock Option:




(a)  promptly
after Closing, without interest thereon, an amount in cash equal to the number
of shares of Company Common Stock the subject of such Company Stock Option
multiplied by (i) 90% of (A) the Purchase Price divided by
(B) the total number of shares of Company Common Stock outstanding
immediately prior to the Effective Time, less (ii) the
exercise price per share of Company Common Stock subject to such Company Stock
Option; and




(b)  within
five Business Days after the Post-Closing Adjustment Statement becomes final and
binding upon the Parties in accordance with Section 3.02(c), an
amount in cash equal to (i) the number of shares of Company Common Stock
the subject of such Company Stock Option multiplied by (A) (1) the
Adjusted Purchase Price divided by (2) the total number of shares of
Company Common Stock outstanding immediately prior to the Effective Time less (B) the
exercise price per share of Company Common Stock subject to such Company Stock
Option, less
(ii) the amount paid pursuant to clause (a) above in respect of such
Company Stock Option.






46


SECTION
8.09.  Company Stockholder
Approval.  The Company shall take all steps necessary to submit
the Agreement for the approval and adoption by the Company Stockholders under
the DGCL within 30 days of the date of this Agreement.  CES will vote
in favor of the approval and adoption of the Agreement at any meeting of the
Company Stockholders called for such purpose or to exercise such vote and
approval by written consent in lieu of a meeting in accordance with the DGCL and
to cause such Company Stockholder approval to occur in a timely fashion. Within
30 days of the date of this Agreement, the Company will notify Parent that such
approval has occurred.




SECTION
8.10.  Title Insurance, Surveys,
Estoppel Certificates, and Non-Disturbance Agreements.  At
Parent’s option and at Parent’s sole cost and expense, Parent may obtain (i)
title insurance policies in respect of the Owned Real Property, Leased Real
Property, and rights in and to all Easements, insuring title to or leasehold or
easement interests in (as applicable) the applicable real property interests as
vested in the Company or any Cap Rock Entity (free and clear of all Encumbrances
other than Permitted Encumbrances), and in form, substance, and amount
reasonably satisfactory to Parent (and without limiting the generality of the
foregoing, with all requirements satisfied or waived, with all exceptions
deleted, and with all endorsements thereto, to the extent reasonably desired by
Parent); (ii) all surveys desired by Parent in respect of the Owned Real
Property, in form and substance reasonably satisfactory to Parent; and (iii) all
estoppel certificates and non-disturbance agreements desired by Parent in
respect of any Real Property Leases, in form and substance reasonably
satisfactory to Parent and to the parties providing such certificates and
agreements.  The Company agrees to cooperate as reasonably requested
by Parent (and at Parent’s expense) in its efforts to obtain any such items;
provided, that
the Company shall not be required to make any payment to any third party or
incur any economic burden in connection therewith, and provided, further, that
Parent’s obtaining any such item shall not be a requirement of or a condition to
the Closing.  In addition, with respect to the Company’s cooperation
with Parent’s reasonable requests to obtain title insurance under clause (i)
above, the Company shall not be required to cure any purported defects, cause
any exceptions to be deleted, or provide any indemnities, or representations to
any title company issuing such title insurance.




SECTION
8.11.  Tax
Matters




(a)  Tax
Indemnification.  CES shall be responsible for and shall
indemnify and hold the Parent and its Affiliates harmless against any and all
Losses and Claims attributable to (i) all Taxes (or the non-payment thereof) of
the Cap Rock Entities for all taxable periods ending on or before the Closing
Date and the portion through the end of the Closing Date for any Straddle Period
(“Pre-Closing Tax
Period”), (ii)
all Taxes of any member of an affiliated, consolidated, combined or unitary
group of which any Cap Rock Entity (or any predecessor of any of the foregoing)
is or was a member on or prior to the Closing Date, including pursuant to
Treasury Regulation §1.1502-6 or any analogous or similar state, local, or
foreign law or regulation, or (iii) any and all Taxes of any Person imposed on
any of the Cap Rock Entities as a transferee or successor, by contract or
pursuant to any law, rule, or regulation, which Taxes relate to an event or
transaction occurring before the Closing.






47


(i)  In the
case of Taxes that are payable with respect to any taxable period beginning on
or before the Closing Date and ending after the Closing Date (a “Straddle Period”),
the portion of any Taxes based on or measured by income or receipts of the Cap
Rock Entities for the Pre-Closing Tax Period shall be determined based on an
interim closing of the books as of the close of business on the Closing Date
(and for such purpose, the taxable period for any partnership or other
pass-through entity in which any of the Cap Rock Entities holds a beneficial
interest shall be deemed to terminate at such time); and the amount of all other
Taxes for a Straddle Period that relates to the Pre-Closing Tax Period shall be
deemed to be the amount of such Tax for the entire Straddle Period multiplied by
a fraction the numerator of which is the number of days in the Straddle Period
up to and including the Closing Date and the denominator of which is the number
of days in the entire Straddle Period.




(ii)  Any
credit or refunds of Taxes that relate to Pre-Closing Tax Periods shall be for
the account of CES except to the extent that such refunds relate to carrybacks
of losses or credits from post-Closing periods.  Any credit or refund
resulting from an overpayment of the Taxes of any of the Cap Rock Entities for a
Straddle Period shall be allocated to the portion of the Straddle Period ending
at the Closing and/or the portion of the Straddle Period beginning after the
Closing based upon the method employed in Section 8.11(a)(i) above taking into
account the type of Tax to which the credit or refund relates.  In the
case of any Tax based upon or measured by capital (including net worth or
long-term debt) or intangibles, any amount thereof required to be allocated
under this Section 8.11(a) shall be computed by reference to the level of such
items on the date of the Closing.  All determinations necessary to
effect the foregoing allocations shall be made in a manner consistent with prior
practice of the Cap Rock Entities.




Payment
by the indemnifying party of any amount due under this Section 8.11(a) shall be
made within ten days following written notice by the indemnified party that
payment of such amounts to the appropriate Taxing Authority is due, provided, that the
indemnifying party shall not be required to make any payment earlier than two
days before it is due to the appropriate Taxing
Authority.  Notwithstanding anything to the contrary herein, if CES or
an Affiliate receives an assessment or other notice of Taxes due with respect to
any of the Cap Rock Entities for which CES is not responsible, in whole or in
part, pursuant to Section 8.11(a), then the CES shall immediately forward a copy
of such notice to the Parent.






48


(b)  Contests.  After
the Closing, the Parent on one hand and CES on the other hand shall promptly
notify each other in writing of the proposed assessment or the commencement of
any Tax audit or administrative or judicial proceeding or of any demand or claim
on the other party or its Affiliates which, if determined adversely to the
taxpayer or after the lapse of time, could be grounds for indemnification under
this Agreement.  Such notice shall include copies of any notice or
other document received from any Taxing Authority in respect of any such
asserted Tax liability.  If either party fails to give the other party
prompt notice of an asserted Tax liability as required by this Section 8.11(b),
then such party shall not have any obligation to indemnify for any loss arising
out of such asserted Tax liability, but only to the extent that failure to give
such notice results in a material detriment to such party.




In the
case of a Tax audit or administrative or judicial proceeding (a “Contest”) that
relates to taxable periods ending on or before the date of the Closing, or a
Contest that relates to an asserted Tax liability with respect to which
indemnity may be sought from CES pursuant to this Agreement, CES shall control
such audit in all respects.  CES may not settle or compromise any
asserted liability with respect to any Contest without prior written consent of
Parent, which shall not be unreasonably withheld or delayed.




(c)  Preparation and Filing of
Tax Returns.




(i)  Period Ending On or Prior to
Closing Date.  CES shall prepare or cause to be prepared all
Tax Returns for the Cap Rock Entities with respect to periods ending on or prior
to the Closing Date and are due (taking validly obtained extensions into
account) after the Closing Date.  CES shall prepare or cause to be
prepared such Tax Returns consistently with its past custom and practice and in
accordance with applicable Law.  CES shall provide Parent with a copy
of such completed Tax Return and a statement certifying the amount of Tax shown
on such Tax Return that is allocable to CES pursuant to this Agreement at least
twenty days prior to the due date (including any extension thereof) for filing
of such Tax Return, and Parent shall have the right to review, comment to and
suggest changes to such Tax Return and statement prior to the filing of such Tax
Return.  CES shall consider Parent’s comments in good faith but shall
not be obligated to accept such comments.  Notwithstanding the
foregoing, if CES provides Parent with notice that it will not prepare the Tax
Returns covered by this paragraph, or if CES does not provide Parent with a copy
of the Tax Return within fifteen days prior to the due date (including any
extension thereof), then Parent shall have the right to prepare and file such
Tax Returns consistently with past custom and practice (so long as such past
custom and practice was in accordance with applicable Law) and in accordance
with applicable Law.






49


(ii)  Straddle
Periods.  Parent shall prepare or cause to be prepared and file
or cause to be filed all Tax Returns for the Cap Rock Entities with respect to
Straddle Periods.  Such Tax Returns shall be prepared consistently
with past custom and practice (so long as such past custom and practice was in
accordance with applicable Law) and in accordance with applicable
Law.  Parent shall provide CES with a copy of such completed Tax
Returns and a statement certifying the amount of Tax shown on such Tax Return
that is allocable to CES pursuant to this Agreement at least fifteen days prior
to the due date (including any extension thereof) for the filing of such Tax
Return, and CES shall have the right to review, comment on and makes changes to
such portions of such Tax Returns and statements as relate to the period prior
to the Closing Date.  If Parent objects to any such changes, CES shall
consider Parent’s objections in good faith but shall not be obligated to accept
such objections.




(d)  Tax Cooperation and Exchange
of Information.  To the extent otherwise permissible by this
Section 8.11,
CES and its Affiliates and Parent and its Affiliates shall provide each other
with such cooperation and information as they reasonably may request of the
other (and the Parent shall cause the Company to provide such cooperation and
information) in filing any Tax Return, or participating in or conducting any
audit or other proceeding in respect of Taxes.  Such cooperation and
information shall include providing copies of relevant Tax Returns or portions
thereof, together with related work papers and documents relating to rulings or
other determinations by taxing authorities.  CES and Parent shall make
themselves (and their respective employees) reasonably available on a mutually
convenient basis to provide explanations of any documents or information
provided under this Section
8.11(d).  Notwithstanding anything to the contrary in Section 8.11, CES and
Parent (or the Surviving Entity) shall retain all Tax Returns, work papers and
all material records or other documents in its possession (or in the possession
of its Affiliates) relating to Tax matters of the Cap Rock Entities for any
taxable period that includes the date of the Closing and for all prior taxable
periods until the later of (i) the expiration of the statute of limitations
of the taxable periods to which such Tax Returns and other documents relate,
without regard to extensions or (ii) six years following the due date
(without extension) for such Tax Returns.  Any information obtained
under this Section
8.11(d) shall be kept confidential, except as may be otherwise necessary
in connection with the filing of Tax Returns or claims for refund or in
conducting an audit or other proceeding.




(e)  Tax
Covenants.  Parent and CES further agree, upon request, to use
their commercially reasonable efforts to obtain any certificate or other
document from any Taxing Authority or other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including with
respect to the transactions contemplated hereby).




(f)  Tax-Sharing
Agreements.  All tax-sharing
agreements or similar agreements with respect to or involving any of the Cap
Rock Entities shall be terminated as of the Closing Date and, after the Closing
Date, none of the Cap Rock Entities shall be bound thereby or have any liability
thereunder.






50


(g)  Miscellaneous




(i)           
For Tax purposes, the parties agree to treat all payments made under this Section 8.11 as
adjustments to the Purchase Price.




(ii)           
This Section
8.11 shall be the sole provision governing indemnities for Taxes under
this Agreement as well as Contests and cooperation related to Tax matters; provided, however, that
indemnities resulting from breaches of the representations, warranties and
covenants of CES or Company that are not already described in Section 8.11 (a)
shall be governed by Article X of this Agreement.




(iii)           
For purposes of this Section 8.11, all
references to the Parent, CES, Affiliates or the Company include
successors.




(iv)           
Notwithstanding any provision in this Agreement to the contrary, the covenants
and agreements of the parties hereto contained in this Section 8.11 shall
survive the Closing and shall remain in full force until 180 days after the
expiration of the applicable statutes of limitations for the Taxes in question
(taking into account any extensions or waivers thereof).




SECTION
8.12.  Minimum Net
Worth/Disbursement Account.




(a)  For a
period of not less than twenty-four (24) months following the Closing, CES
covenants and agrees to maintain a net worth or stockholders’ equity or members’
equity of not less than $25,000,000, as determined in accordance with GAAP, plus
(i) the maximum potential liability of the Cap Rock Entities to former
stockholders of Cap Rock Energy for payment of consideration pursuant to the
Share Exchange, determined as of the Closing Date, less (ii) the balance in the
Disbursement Account as of the Closing Date.  CES also covenants and
agrees to deliver to Parent within 60 days of the end of each calendar quarter
and within 90 days of the end of each fiscal year, for the period in which the
net worth covenant in the preceding sentence is applicable, a certificate from
the chief financial officer or the managing member of CES certifying the amount
of the net worth or stockholders’ equity or members’ equity of CES.




(b)  Prior to
April 15, 2010, Parent and CES shall agree in good faith as to (i) whether, as
of April 15, 2010, valid Claims lawfully may still be made for which indemnity
would be available under Section 10.02(a)(v) and, if so, (ii) the time periods
within which such Claims must be brought,  the maximum potential
liability of the Cap Rock Entities under such Claims and appropriate assurance
for Parent that CES will remain financially capable of meeting its obligations
with respect thereto under Section 10.02(a)(v).




(c)  The Parties will consult with each
other following Closing with respect to the appropriateness and timing of Parent
making filings, and the content of such filings, with Governmental Entities
regarding the the Disbursement Account.  Parent agrees that it will
take such actions as may be directed by CES with respect to such filings so long
as CES's direction is made pursuant to external legal advice.






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SECTION
8.13.  Supplements to
Schedules.   Prior to the Closing Date, the Company may
supplement or amend the Schedules furnished by it under this Agreement except
for Section
8.01(a) of the Company Disclosure Letter; provided, however, that the new
disclosures made in any supplement shall not have any effect on the
determination of the satisfaction of the conditions to Closing under Article IX or any of
Parent’s or its Affiliates rights and claims to indemnification under Article
X.




SECTION
8.14.  Eminent Domain; Casualty
Loss.




(a)  If,
before the Closing Date, all or any portion of any assets of the Business are
taken by eminent domain or condemnation, or are the subject of a pending or, to
the Company’s Knowledge, contemplated taking which has not been consummated, the
Company will (i) notify Parent in writing of such fact and (ii) retain in the
applicable Cap Rock Entity (and not distribute) all right, title, and interest
in and to any proceeds or payments received, or to be received, in compensation
for such taking, and any such proceeds or payments will not be included in the
calculation of Working Capital.




(b)  If,
before the Closing Date, all or any portion of any assets of the Business are
damaged or destroyed by fire or other casualty, the Company will notify Parent
in writing of such fact and, at the Closing (i) all proceeds from third-party
insurers received by, and each Cap Rock Entity’s right, title, and interest in
and to any such insurance proceeds received, or to be received, in compensation
for such damage or destruction shall remain with such Cap Rock Entity, and (ii)
CES will reimburse Parent for any deductible or self-insured retention amount in
connection with such damage or destruction under any such insurance policy;
provided, however, that the
amounts to be retained under clause (i) above shall be reduced by the amount of
proceeds received by a Cap Rock Entity and applied with the consent of Parent to
the repair or restoration of the applicable asset and the amounts to be
reimbursed by CES under clause (ii) above shall be reduced by the amounts
incurred by any Cap Rock Entity in connection with any such repair or
restoration and not paid or reimbursed by such insurance.  Any such
proceeds or payments from insurers will not be included in the calculation of
Working Capital.




SECTION
8.15.  Certain Cap Rock
Employees.  CES will offer employment to the employees listed
on Schedule 1.01-I (the “Specified Employees”)
for employment to commence immediately following the Closing.  CES
will be responsible for all severance or change of control benefits arising out
of or in connection with the resignation or termination of employment of the
Specified Employees with any Cap Rock Entity.  CES hereby indemnifies
and holds harmless Parent and its Affiliates (including any Cap Rock Entities
following the Closing) from and against the cost of any such severance or change
of control benefits and any and all Claims and Losses arising out of or in
connection with the resignation or termination of the Specified Employees from
employment with any Cap Rock Entity.






52


ARTICLE
IX




CONDITIONS
TO CLOSING




SECTION
9.01.  Conditions to Each Party’s
Obligations to Effect the Closing.  The respective obligations
of each Party to effect the Transactions are subject to the fulfillment at or
prior to the Closing Date of the following conditions:




(a)  the
waiting period under the HSR Act, including any extension thereof, applicable to
the consummation of the Transactions shall have expired or been
terminated;




(b)  no Order
which prevents the consummation of any material aspect of the Transactions shall
have been issued and remains in effect (each Party agreeing to use its
commercially reasonable efforts to have any such Order lifted) and no Law shall
have been enacted which prohibits the consummation of the
Transactions;




(c)  all
consents and approvals for the consummation of the Transactions required from
third parties shall have been obtained, other than (i) any of such consents or
approvals the failure of which to obtain, individually or in the aggregate, does
not have and would not reasonably be expected to have a Cap Rock Material
Adverse Effect and (ii) any Required Regulatory Approval (which are governed by
Section 9.02(f)
and Section
9.03(d); and




(d)  the
closing under the Asset Purchase Agreement shall have been
consummated.




SECTION
9.02.  Conditions to Obligations of
Parent.  The obligation of Parent and Sub to effect the
Transactions is subject to the fulfillment at or prior to the Closing Date of
the following additional conditions:




(a)  since the
date of this Agreement and through the period ending immediately prior to the
Effective Time, no Cap Rock Material Adverse Effect shall have occurred and be
continuing;




(b)  the
Company shall have performed and complied in all material respects with the
covenants and agreements contained in this Agreement which are required to be
performed and complied with by the Company on or prior to the Closing
Date;




(c)  the
representations and warranties of CES which are set forth in Article V and of the
Company which are set forth in Article VI shall be
true and correct as of the Effective Time as though made at and as of the
Effective Time (without giving effect to any limitation as to “materiality” or
“Material Adverse Effect” set forth therein), except where the failure of such
representations and warranties to be true and correct, individually or in the
aggregate, does not have and is not reasonably expected to have a Cap Rock
Material Adverse Effect (except to the extent that any such representation and
warranty speaks as of a particular date, in which case such representation and
warranty need only be true and correct as of such date);






53


(d)  Parent
shall have received a certificate from the Chief Executive Officer of the
Company, dated the Closing Date, to the effect that, to the best of such
officer’s knowledge, the conditions set forth in Sections 9.02(b) and
9.02(c) with
respect to the Company have been satisfied;




(e)  Parent
shall have received a certificate from an authorized signatory of CES, dated the
Closing Date, to the effect that, to the best of such officer’s knowledge, the
conditions set forth in Sections 9.02(b) and
9.02(c) with
respect to CES have been satisfied;




(f)  (i) the
Required Regulatory Approvals shall have been obtained and become Final
Regulatory Orders and (ii) no terms shall have been imposed in connection with
such Final Regulatory Orders by any Governmental Entity which terms would
reasonably be expected to have a Cap Rock Material Adverse Effect, or impose any
material adverse requirements, on Parent or any of its Affiliates or on any
operations or assets of Parent or any of its Affiliates;




(g)  the
Company Stockholders shall have approved and adopted this Agreement in
accordance with the DGCL;




(h)  Parent
shall have received copies of the resignations of the Specified Employees and
directors of each of the Cap Rock Entities, and releases from such persons of
any and all Claims and rights to payment of any kind against any Cap Rock Entity
(other than any Claims or rights to payment arising under this Agreement),
effective as of the Closing, other than any such resignations and releases that
Parent designates, by written notice to the Company, as unnecessary), and
officers and directors for each Cap Rock Entity who are designated by Parent in
its discretion shall have been elected or appointed effective as of the
Closing;




(i)  CES or
any of its Affiliates (or any member, manager, partner, officer, director,
employee or agent of CES or any Affiliate) shall have effectively terminated any
Contract such Person may have with any Cap Rock Entity and all Claims and rights
to payment of any kind by or against any Cap Rock Entity thereunder (other than
any Claims or rights to payment arising under this Agreement) shall have been
released (for purposes of this Section 9.02(i) the
Company and other Cap Rock Entities shall be deemed not to be Affiliates of
CES), and any such individual serving as an officer of a Cap Rock Entity shall
have resigned;




(j)  Parent
shall have received (i) consents and approvals from third parties for the
acquisition of the Company and other Cap Rock Entities (other than Required
Regulatory Approvals), or alternate arrangements in lieu thereof, sufficient for
the conduct and operation of the Business following Closing in all material
respects in the same manner as conducted immediately prior to Closing, without
the imposition of material conditions and (ii) consents to the change of control
of the Cap Rock Entities from the counterparties under the power purchase
agreements or power supply agreements with respect to the Business such that,
after taking into account the availability of power contracts from other sources
and the then current electricity supply plan of the Business and any
requirements imposed by the PUCT, Parent and the Cap Rock Entities will not be
subject to any meaningful incremental risk of significant disallowance of its
pass-through of electric supply or energy costs to ratepayers;






54


(k)  CES shall
have delivered to Parent at or prior to the Closing certificates of good
standing and certified charter documents with respect to CES and each Cap Rock
Entity (dated as of a recent date prior to the Closing Date but in no event more
than 15 Business Days before the Closing Date), issued by the Secretary of State
of Delaware with respect to CES, the Company and Cap Rock Intermediate, and
issued by the Secretary of State of Texas with respect to Cap Rock Energy and
NewCorp;




(l)  a copy,
certified by an authorized officer or manager of CES, of resolutions authorizing
the execution and delivery of this Agreement and the consummation of the
Transactions, together with a certificate by the Secretary or manager of CES as
to the incumbency of those officers or managers authorized to execute and
deliver this Agreement;




(m)  a copy,
certified by an authorized officer of the Company, of resolutions of the
directors and of the shareholders of the Company authorizing the execution and
delivery of this Agreement and the consummation of the Transactions, together
with a certificate by the Secretary or manager of the Company as to the
incumbency of those officers authorized to execute and deliver this Agreement
and the Certificate of Merger;




(n)  Parent
shall have received such other certificates and instruments, including documents
necessary to transfer signing authority for all bank and investment accounts of
the Cap Rock Entities and the adoption of authorizing resolutions, as it shall
reasonably request in connection with the Closing;




(o)  Company
Stockholders holding not more than 1% of the shares of the Company Common Stock
outstanding immediately prior to the Effective Time have elected to dissent
pursuant to Section 262;




(p)  The SEMCO
Note shall have been acquired by CES on or prior to the Closing Date and the
proceeds thereof shall have been used by the Company to pay down its
Indebtedness;




(q)  (i) All
Outstanding Indebtedness shall have been paid and discharged in full and all
Encumbrances securing such Cap Rock Indebtedness shall have been terminated and
released, and (ii) any other Encumbrance that is not a Permitted Encumbrance
(whether or not securing Outstanding Indebtedness), shall have been terminated
and released;




(r)  CES
shall have delivered to Parent, at or immediately prior to Closing, a
consolidated balance sheet for CES and its subsidiaries prepared on a pro forma
basis after giving effect to the consummation of the Transactions at the Closing
and to the consummation of the transactions under the Asset Purchase Agreement
at the “Closing” under the Asset Purchase Agreement as if consummated as of the
end of the last quarter ending prior to the Closing, and showing a consolidated
net worth of at least $400,000,000, and certified by CES as a good faith
estimate of the consolidated pro forma financial condition of CES and its
subsidiaries as of the end of such quarter;




(s)  The
Material Business Agreements set forth on Schedule 1.01-J shall
have been terminated effective at or prior to the Closing (the “Specified
Agreements”) and without any further liability of any Cap Rock Entity
arising thereunder; and






55


(t)  There
shall be at least a $1 million cash balance in the Disbursement Account on the
Closing Date; provided, however, if the amount of unclaimed funds of former
stockholders of Cap Rock Energy is less than $1,000,000, the required cash
balance in the Disbursement Account on the Closing Date pursuant to this clause
(t) shall be equal to such unclaimed amount.




SECTION
9.03.  Conditions to Obligations of
the Company.  The obligation of the Company to effect the
Transactions is subject to the fulfillment at or prior to the Closing Date of
the following additional conditions:




(a)  Parent
shall have performed and complied in all material respects with the covenants
and agreements contained in this Agreement which are required to be performed
and complied with by Parent on or prior to the Closing Date;




(b)  the
representations and warranties of Parent which are set forth in Article VII shall be
true and correct in all material respects as of the Effective Time as though
made at and as of the Effective Time (except to the extent that any such
representation or warranty speaks as of a particular date, in which case such
representation and warranty need only be true and correct as of such
date);




(c)  the
Company shall have received a certificate from the Chief Executive Officer or
Chief Financial Officer of Parent, dated the Closing Date, to the effect that,
to the best of such officer’s knowledge, the conditions set forth in Sections 9.03(a) and
9.03(b) have
been satisfied;




(d)  the
Required Regulatory Approvals shall have been obtained and become Final
Regulatory Orders;




(e)  Parent
shall have delivered to CES at or prior to the Closing certificates of good
standing with respect to Parent and Sub (dated as of a recent date prior to the
Closing Date but in no event more than 15 Business Days before the Closing
Date), issued by the Secretary of State of New Mexico with respect to Parent,
and issued by the Secretary of State of Delaware with respect to Sub;
and




(f)  a copy,
certified by an authorized officer of Parent, of resolutions of the directors of
the Parent authorizing the execution and delivery of this Agreement and the
consummation of the Transactions, together with a certificate by the Secretary
or an Assistant Secretary of Parent as to the incumbency of those officers
authorized to execute and deliver this Agreement and the Certificate of
Merger.






56


ARTICLE
X




INDEMNIFICATION




SECTION
10.01.  Survival of Representations
and Warranties.  The representations and warranties of the
Parties contained in this Agreement will survive the Closing and will expire
April 15, 2010, except that the representations and warranties in Article V andSections 6.01, 6.02, and
6.03 will survive the Closing and will expire on the third anniversary of
the Closing Date, and except further that the representations and warranties in
Sections6.05, 6.14, 6.16(b) and 6.22will survive the Closing and will expire upon the expiration of the
applicable statute of limitations.




SECTION
10.02.  Indemnification.




(a)  Subject
to Section 10.01 and
Section 10.04, from and after the Closing, CES will indemnify, defend,
and hold harmless Parent and its officers, directors, employees, agents and
Affiliates (including the Cap Rock Entities following the Closing), and the
officers, directors, employees and agents of such Affiliates (each, a “Parent Indemnitee”)
from and against any and all Claims and Losses (each, an “Indemnifiable Loss”),
asserted against or suffered by any Parent Indemnitee relating to, resulting
from, or arising out of (i) any breach by CES or the Company of any covenant or
agreement of CES or the Company contained in this Agreement, (ii) any breach by
CES or the Company of any of the representations and warranties of CES or the
Company contained in this Agreement, (iii) any rights asserted or proceedings
pursuant to Section 262 in respect of any Dissent Shares, (iv) any of the
Material Business Agreements listed on Schedule 1.01-K,
other than (A) in respect of any rights to payment of Merger Consideration of
Company Stockholders under this Agreement and rights of holders of Company Stock
Options to the payments pursuant to Section 8.08 and (B)
in the case of Material Business Agreements listed on Part II of Schedule 1.01-K, for
Claims and Losses to the extent arising out of the performance or nonperformance
after the Effective Time by the Cap Rock Entities of their obligations
thereunder, or (v)any Claims brought by former
shareholders of Cap Rock Energy for payment of consideration pursuant to the
Share Exchange or Claims brought by any Governmental Entity under any escheat,
abandoned property or unclaimed property Law that relate to any amounts not paid
to former shareholders of Cap Rock Energy as consideration pursuant to the Share
Exchange, in the aggregate for this clause (v) in excess of the amount of cash
in the Disbursement Account held on the Closing Date.




(b)  Subject
to Section 10.01 and
Section 10.04, from and after the Closing, Parent will indemnify, defend,
and hold harmless CES and its officers, directors, employees, agents and
Affiliates (and the officers, directors, employees and agents of such
Affiliates, (each, a “CES Indemnitee”) from
and against any and all Indemnifiable Losses asserted against or suffered by any
CES Indemnitee relating to, resulting from, or arising out of (i) any breach by
Parent of any covenant or agreement of Parent contained in this Agreement or
(ii) any breach by Parent of any of the representations and warranties of Parent
contained in this Agreement.






57


(c)  Any
Person entitled to receive indemnification under this Agreement (an “Indemnitee”) having a
claim under these indemnification provisions will use commercially reasonable
efforts to mitigate any Losses, including commercially reasonable efforts to
recover all Losses from insurers of such Indemnitee under applicable insurance
policies so as to reduce the amount of any Indemnifiable Loss hereunder, and
will not take any action specifically excluding from any of its insurance
policies any Indemnifiable Losses if Losses of such type are otherwise covered
by such policies.  The amount of any Indemnifiable Loss will be
reduced to the extent that Indemnitee receives any insurance proceeds with
respect to an Indemnifiable Loss.




SECTION
10.03.  Indemnification
Procedures.




(a)  Third Party
Claims.  If an Indemnitee receives notice of the assertion or
commencement of any Claim by any Person who is neither a Party to this Agreement
nor an Affiliate of a Party to this Agreement (a “Third Party Claim”)
for which the Indemnitee claims a right to indemnification hereunder from the
other Party (the “Indemnifying Party”),
the Indemnitee will promptly give written notice of such Third Party Claim to
the Indemnifying Party.  Such notice will describe the nature of the
Third Party Claim in reasonable detail and will indicate the estimated amount,
to the extent practicable, of the Indemnifiable Loss that the Indemnitee claims
it has sustained or may sustain as a result of such Third Party
Claim.  The Indemnifying Party, at its sole cost and expense, will
have the right, upon written notice to the Indemnitee, to assume the defense of
the Third Party Claim while reserving its right to contest the issue of whether
it is liable to the Indemnitee for any indemnification hereunder with respect to
such Third Party Claim.




(b)  Defense of Third Party
Claims.  If the Indemnifying Party assumes the defense of a
Third Party Claim pursuant to Section 10.03(a), the
Indemnifying Party will appoint counsel reasonably satisfactory to the
Indemnitee for the defense of such Third Party Claim, will diligently pursue
such defense, and will keep the Indemnitee reasonably informed with respect to
such defense.  The Indemnitee shall cooperate with the Indemnifying
Party and its counsel, including permitting reasonable access to books, records,
and personnel, in connection with the defense of any Third Party Claim (provided, that any
out-of-pocket costs incurred by the Indemnitee in providing such cooperation
shall be paid by the Indemnifying Party).  The Indemnitee will have
the right to participate in such defense, including appointing separate counsel,
but the costs of such participation shall be borne solely by the
Indemnitee.  The Indemnifying Party will have full authority, in
consultation with the Indemnitee, to make all decisions and determine all
actions to be taken with respect to the defense and settlement of the Third
Party Claim, including the right to pay, compromise, settle, or otherwise
dispose of such Third Party Claim at the Indemnifying Party’s expense; provided, that any
such settlement will be subject to the prior consent of the Indemnitee, which
shall not be unreasonably withheld or delayed.  If a firm offer is
made to settle a Third Party Claim, which the Indemnifying Party desires to
accept and which acceptance requires the consent of the Indemnitee pursuant to
the immediately preceding sentence, the Indemnifying Party will give written
notice to the Indemnitee to that effect.  If the Indemnitee fails to
consent to such firm offer within 10 days after its receipt of such notice, and
such firm offer involves only the payment of money, the maximum liability of the
Indemnifying Party with respect to such Third Party Claim will be the amount of
such settlement offer, plus reasonable costs and expenses paid or incurred by
the Indemnitee up to the date of such notice for which the Indemnifying Party is
otherwise liable.  In no event will the Indemnifying Party have
authority to agree to any relief binding on the Indemnitee other than the
payment of money damages by the Indemnifying Party unless agreed to by the
Indemnitee, which agreement will not be unreasonably withheld or
delayed.






58


(c)  Failure of Indemnifying
Party to Assume Defense.  If the Indemnifying Party does not
assume the defense of a Third Party Claim in accordance with the terms hereof
within 20 Business Days after the receipt of notice thereof, the Indemnitee may
elect to defend against the Third Party Claim, and the Indemnifying Party will
be liable for all reasonable expenses of such defense to the extent the
Indemnifying Party is otherwise obligated hereunder to indemnify Indemnitee with
respect to such Third Party Claim.




(d)  Direct
Losses.  Any claim by an Indemnitee on account of an
Indemnifiable Loss which does not result from a Third Party Claim (a “Direct Loss”) will be
asserted by giving the Indemnifying Party prompt written notice thereof, stating
the nature of such Loss in reasonable detail and indicating the estimated
amount, if practicable.  The Indemnifying Party will have a period of
20 Business Days within which to respond to such claim of a Direct
Loss.  If the Indemnifying Party rejects such claim, or does not
respond within such period, the Indemnitee may seek enforcement of its rights to
indemnification under this Agreement.  Any failure by the Indemnifying
Party to respond under this Section 10.03(d) will
not constitute an admission by the Indemnifying Party with respect to the claim
asserted.




(e)  If the
amount of any Indemnifiable Loss, at any time subsequent to the making of an
indemnity payment in respect thereof, is reduced by recovery, settlement, or
otherwise under or pursuant to any insurance coverage, or pursuant to any claim,
recovery, settlement, or payment by or against any other Person, the amount of
such reduction, less any costs, expenses, or premiums incurred in connection
therewith, will promptly be repaid by the Indemnitee to the Indemnifying
Party.  Upon making any indemnity payment, the Indemnifying Party
will, to the extent of such indemnity payment, be subrogated to all rights of
the Indemnitee against any third party in respect of the Indemnifiable Loss to
which the indemnity payment relates; provided, however, that (i) the
Indemnifying Party is then in compliance with its obligations under this
Agreement in respect of such Indemnifiable Loss and (ii) until the Indemnitee
recovers full payment of its Indemnifiable Loss, any and all claims of the
Indemnifying Party against any such third party on account of said indemnity
payment will be subordinated to the Indemnitee’s rights against such third
party.  Without limiting the generality or effect of any other
provision hereof, the Indemnitee and the Indemnifying Party will duly execute
upon request all instruments reasonably necessary to evidence and perfect the
above described subrogation and subordination rights, and otherwise cooperate in
the prosecution of such claims at the direction of the Indemnifying
Party.






59


(f)  A failure
to give timely notice as provided in this Section 10.03 will
affect the rights or obligations of a Party hereunder only to the extent that,
as a result of such failure, the Party entitled to receive such notice was
actually prejudiced as a result of such failure.  Notwithstanding the
foregoing, no claim for indemnification made after expiration of the applicable
time periods set forth in this Article X will be
valid.




SECTION
10.04.  Limitations on
Indemnification.




(a)  A Party
may assert a claim for indemnification under Section 10.02(a)(ii)
or Section
10.02(b)(ii), as the case may be, only to the extent the Indemnitee gives
notice of such claim to the Indemnifying Party prior to the expiration of the
applicable time period set forth in Section
10.01.  Any claim pursuant to Section 10.02(a)(i)
or Section
10.02(b)(i) in respect of a covenant or agreement which by its terms is
to be performed prior to or at the Closing must be asserted within one year
following the Closing Date.  Any claim for indemnification pursuant to
Section 8.11
must be asserted within the period of survival set forth in Section
8.11(g)(iv).  Any claim for indemnification pursuant to Section 8.15 must be
asserted within four years following the Closing Date.  Any claim
pursuant to Section
10.02(a)(iii) must be asserted within two years following the Closing
Date.  Any claim pursuant to Section 10.02(a)(iv)
or Section 10.02(a)(v) must be
asserted prior to the expiration of the applicable statute of limitations, if
any.  Any claim for indemnification not made in accordance with Section 10.03 by a
Party on or prior to the applicable date set forth in Section 10.01 or this
Section
10.04(a), and the other Party’s indemnification obligations with respect
thereto, will be irrevocably and unconditionally released and
waived.




(b)  Notwithstanding any other provision of this Article X, except as
provided in the second, third and fourth sentences of this Section 10.04(b), (i)
CES will not have any indemnification obligations for Indemnifiable Losses under
Section
10.02(a)(i) and Section 10.02(a)(ii)
(A) in respect of any representation and warranty of the Company in Article VI
for any individual item where the Loss relating thereto is less than $50,000 and
(B) in respect of each individual item of any breach of a representation and
warranty of the Company in Article VI where the Loss relating thereto is equal
to or greater than $50,000, unless the aggregate amount of all such Losses
exceeds 1% of the Total Enterprise Value, and then only to the extent of such
excess; and (ii) in no event will the aggregate indemnification to be paid by
CES under Section
10.02(a)(i) and Section 10.02(a)(ii)
exceed 10% of the Total Enterprise Value.  Notwithstanding the
foregoing, the limitations set forth in Section 10.04(b)(i)
and Section
10.04(b)(ii) will not apply to claims asserted by Parent or any Parent
Indemnitee arising under Section 8.11, Section 8.15, Section
10.02(a)(iii), Section 10.02(a)(iv)
or Section
10.02(a)(v), or arising in respect of any breach of any representation or
warranty in Article
V, or arising in respect of any breach of any representation or warranty
in 6.05, 6.22, or
6.23, or from the intentional fraud of CES or the
Company.  Notwithstanding the foregoing, the limitations set forth in
Section
10.04(b)(i) and Section 10.04(b)(ii)
will not apply to claims asserted by Parent or any Parent Indemnitee arising
under Sections 6.01,
6.02, 6.03, but in no event will the aggregate indemnification to be paid
by CES in respect of claims arising under Sections 6.01, 6.02 and
6.03 and in respect of other representations and warranties of the
Company in Article VI exceed 15% of the Total Enterprise
Value.  Notwithstanding the foregoing, the limitation set forth in
Section
10.04(b)(i) will not apply to claims asserted by Parent or any Parent
Indemnitee arising under Section
6.08.






60


(c)  Notwithstanding any other provision of this Article X, except as
provided in the second sentence of this Section 10.04(c) (i) Parent will not
have any indemnification obligations for Indemnifiable Losses under Section 10.02(b)(i)
and Section
10.02(b)(ii) (A) for any individual item where the Loss relating thereto
is less than $50,000 and (B) in respect of each individual item where the Loss
relating thereto is equal to or greater than $50,000, unless the aggregate
amount of all such Losses exceeds 1% of the Total Enterprise Value, and then
only to the extent of such excess; and (ii) in no event will the aggregate
indemnification to be paid by Parent under Section 10.02(b)(i)
and Section
10.02(b)(ii) exceed 10% of the Total Enterprise
Value.  Notwithstanding the foregoing, the limitations set forth in
Section
10.04(c)(i) and Section 10.04(c)(ii)
will not apply to claims asserted by CES arising from the intentional fraud of
Parent.




(d)  Notwithstanding
anything to the contrary in this Agreement, Parent shall not be entitled to
indemnification under this Article X with
respect to any breach or inaccuracy of any representation, warranty, covenant or
agreement of CES or the Company, if (i) CES or the Company provides written
notice to Parent at least five Business Days prior to Closing describing in
detail such breach or inaccuracy, (ii) CES or the Company simultaneously and
irrevocably informs Parent in writing that, because of such breach or inaccuracy
Parent is not required to consummate the transactions contemplated by this
Agreement by reason of Section 9.02(b) or
9.02(c), as the
case may be, and (ii) the Closing occurs.




(e)  Notwithstanding anything contained in this Agreement to the contrary, except for
the representations and warranties contained in Article Vand Article VI, neither
CES, the Company nor any other Person is making any other express or implied
representation or warranty, whether arising by operation of law or otherwise,
with respect to CES, the Company, the Business, or the Transactions, including,
but in no way limited to, any representation or warranty, as to liabilities,
operations of the Business, or the merchantability, habitability or fitness for
a particular use, marketability, value or quality of any Cap Rock Entity’s
assets or the prospects (financial and otherwise), risks and other incidents of
the Business.  Except for  the representations and
warranties contained in Article Vand Article VI, CES and
the Company expressly disclaim, whether made by CES, the Company or their
respective Affiliates, officers, directors, employees, agents, or
representatives, any representation or warranty of merchantability, usage,
suitability or fitness for any particular purpose with respect to the assets of
the Business, or any part thereof, or as to the workmanship thereof, or the
absence of any defects therein, whether latent or patent, or compliance with
environmental requirements, or the applicability of any governmental
requirements, including but not limited to any environmental protection,
pollution control and land use laws, rules, regulations, orders and
requirements, including but not limited to those pertaining to the use,
handling, generation, treatment, storage or disposal of any toxic or hazardous
waste or toxic, hazardous or regulated substance, or whether the Cap Rock
Entities possess sufficient owned real property or personal property to operate
their assets. Except as otherwise expressly provided in Article V orArticle VI, CES and
the Company further specifically disclaim any representation or warranty
regarding the absence of hazardous substances or liability or potential
liability arising under Environmental Laws with respect to the assets of any Cap
Rock Entity.






61


(f)  Any claims Parent may have for breach
of any representation or warranty in this Agreement must be based solely on the
representations and warranties set forth inArticle
VorArticle
VI.  In
furtherance of the foregoing, except for the representations and warranties
contained inArticle
V,Article
VI, and the covenants inArticle
VIII, Parent
acknowledges and agrees that none of CES, the Company or any of their
respective Affiliates will have or be subject to any liability to Parent for,
and CES and the Company hereby expressly disclaim all liability and
responsibility for, any representation, warranty, projection, forecast,
statement, or information made, communicated, or furnished (orally or in
writing) to Parent or any of Parent’s Representatives, including any
confidential memoranda distributed on behalf of CES or the Company relating to
the Cap Rock Entities or the Business, or other publications or data room
information provided to Parent or Parent’s Representatives, or any other
document or information in any form provided to Parent or Parent’s
Representatives in connection with the Merger and the transactions contemplated
hereby (including any opinion, information, projection, or advice that may have
been or may be provided to Parent or Parent’s Representatives by any of CES’s
Representatives).PARENT HEREBY ACKNOWLEDGES THAT,
EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH INARTICLES
V AND VI, THE BUSINESS
IS BEING PURCHASED ON AN “AS IS, WHERE IS” BASIS, WITH ALL FAULTS AND WITH ALL
KNOWN AND UNKNOWN ENVIRONMENTAL CONDITIONS AND LIABILITIES (INCLUDING WITHOUT
LIMITATION STRICT LIABILITY).




SECTION
10.05.  Applicability of Article
X.  For the avoidance of doubt, the Parties agree that the
remedies and obligations under this Article Xapply only
following the Closing, and that prior to the Closing or in the event that this
Agreement is terminated the Parties’ remedies will be determined by applicable
Law and the provisions of Article
XI.




SECTION
10.06.  Tax Treatment of Indemnity
Payments.  CES, the Company, and Parent, agree to treat any
payment made pursuant to thisArticle X as an
adjustment to the Purchase Price for federal, state, and local income Tax
purposes.




SECTION
10.07.  No Consequential
Damages.  Notwithstanding anything to the contrary elsewhere in
this Agreement or provided for under any applicable Law, except as specifically
provided in Section
11.03(b) and Section 11.03(c), no
Party will, in any event, be liable to the other Party or to the Parties, as the
case may be, either in contract or in tort, for any consequential, indirect,
special, lost profits or punitive damages, including loss of future revenue,
income, or profits, or loss of business reputation or opportunity of the other
Party or of the other Parties, as the case may be, relating to the breach or
alleged breach hereof or otherwise, whether or not the possibility of such
damages has been disclosed to the other Party or  to the Parties, or
any one of them, as the case may be, in advance or could have been reasonably
foreseen by such other Party or such Parties, or any one of them, as the case
may be; provided, that the limitations contained in this Section 10.07 shall not
apply to any Claim for diminution in value.






62


SECTION
10.08.  Exclusive
Remedy.  CES, the Company and Parent acknowledge and agree
that, from and after the Closing, the sole and exclusive monetary remedy for any
breach or inaccuracy, or alleged breach or inaccuracy, of any representation or
warranty in this Agreement or any covenant or agreement to be performed
hereunder or thereunder will be indemnification in accordance with this Article X and, if
applicable, Section
8.11.  In furtherance of the foregoing, CES, the Cap Rock
Entities and Parent and Sub hereby waive, to the fullest extent permitted by
applicable Law, any and all other rights, claims, and causes of action
(including rights of contributions, if any) that may be based upon, arise out
of, or relate to this Agreement, or the negotiation, execution, or performance
of this Agreement (including any tort or breach of contract claim or cause of
action based upon, arising out of, or related to any representation or warranty
made in or in connection with this Agreement or as an inducement to enter into
this Agreement), known or unknown, foreseen or unforeseen, which exist or may
arise in the future, that it may have against the other arising under or based
upon any Law (including any such Law under or relating to environmental
matters), common law, or otherwise.




ARTICLE
XI





TERMINATION
AND OTHER REMEDIES




SECTION
11.01.  Termination.  (a)  This
Agreement may be terminated at any time prior to the Closing Date by mutual
written consent of Parent and the Company.




(b)  This
Agreement will terminate if the Closing has not occurred on or before the date
which is 12 months following the date of this Agreement (the “Termination Date”);
provided, however, that if on
the Termination Date, either (i) one of the Parties has failed to fulfill any
obligation under this Agreement which has been the cause of, or resulted in, the
failure of the Closing to occur, or (ii) the conditions to the Closing set forth
in Section
9.02(f) and Section 9.03(d) have
not been fulfilled but all other conditions to the Closing have been fulfilled
or are capable of being fulfilled, then the Termination Date will be the day
which is 18 months following the date of this Agreement.




(c)  This
Agreement may be terminated by Parent if (i) any Required Regulatory Approval
(A) has been denied by the applicable Governmental Entity and all appeals of
such denial have been taken and have been unsuccessful, or (B) has become a
Final Regulatory Order and such Final Regulatory Order imposes conditions or
requirements that would result in the failure of the condition in Section
9.02(f), or (ii) one or more courts of competent jurisdiction in the United
States or any State has issued an Order permanently restraining, enjoining, or
otherwise prohibiting the Closing, and such Order has become final and
nonappealable.






63


(d)  This
Agreement may be terminated by Parent if there has been a breach by the Company
or CES as of the date of this Agreement of any representation or warranty, or
any breach by the Company or CES of any covenant, in each case made by it in
this Agreement which has prevented the satisfaction of any condition to the
obligations of Parent to effect the Closing and such breach has not been cured
by the Company or waived by Parent within 20 Business Days after all other
conditions to Closing have been satisfied or are capable of being
satisfied.




(e)  This
Agreement may be terminated by the Company if there has been a breach by Parent
or Sub as of the date of this Agreement of any representation or warranty, or
any breach by Parent or Sub of any covenant, in each case made by it in this
Agreement which has prevented the satisfaction of any condition to the
obligations of the Company to effect the Closing and such breach has not been
cured by Parent or waived by the Company within 20 Business Days after all other
conditions to Closing have been satisfied or are capable of being
satisfied.




(f)  This
Agreement may be terminated by the Company if (i) any Required Regulatory
Approval has been denied by the applicable Governmental Entity and all appeals
of such denial have been taken and have been unsuccessful or (ii) one or more
courts of competent jurisdiction in the United States or any State has issued an
Order permanently restraining, enjoining, or otherwise prohibiting the Closing,
and such Order has become final and nonappealable.




(g)  This
Agreement shall automatically terminate upon the termination of the Asset
Purchase Agreement.




(h)  This
Agreement may be terminated by the Company if any Required Regulatory Approval
has become an Order and Parent asserts that the Order, if it becomes a Final
Regulatory Order, will not meet the closing condition in Section 9.02(f)(ii)
and Parent does not agree to waive such closing condition within 30 days of
receipt of such Order.




SECTION
11.02.  Procedure and Effect of
Termination.  In the event of termination of this Agreement by
either or both of the Parties pursuant to Section 11.01,
subject to any cure periods contemplated therein, written notice thereof will
forthwith be given by the terminating Party to the other Party and this
Agreement will terminate and the Transactions will be abandoned, without further
action by either Party, whereupon the liabilities of the Parties hereunder will
terminate, except as provided in Section
11.03.  If prior to Closing either Party resorts to legal
proceedings to enforce this Agreement, the prevailing Party in such proceedings
shall be entitled to recover all costs incurred by such Party, including
reasonable attorney’s fees, in addition to any other relief to which such Party
may be entitled; provided, however, and
notwithstanding anything to the contrary in this Agreement, in no event shall
either Party be entitled to receive any punitive, indirect or consequential
damages.






64


SECTION
11.03.  Remedies upon
Termination.  If this Agreement is terminated as provided
herein:




(a)  The
obligations of the Parties under Articles I and XIIand this Article XI, and Sections 8.02, 8.03 and 8.05 will survive the
termination of this Agreement pursuant to Section
11.01.




(b)  Parent
will pay to the Company a fee equal to $8,100,000 if the Company terminates this
Agreement pursuant to Section
11.01(e).




(c)  The
Company will pay to Parent a fee equal to $8,100,000 if Parent terminates this
Agreement pursuant to Section
11.01(d).




(d)  In view
of the difficulty of determining the amount of damages which may result to the
non-terminating Party from a termination pursuant to any of the Sections of this
Agreement referenced in Section 11.03(b) or
Section
11.03(c), and the failure of the terminating Party to consummate the
Transactions, the Parties have mutually agreed that each of the payments set
forth in Section
11.03(b) and Section 11.03(c)
shall be made to the non-terminating Party as liquidated damages, and not as a
penalty, and this Agreement shall thereafter terminate except for those
provisions which by their terms survive termination of this
Agreement.  In the event of any termination of this Agreement, Parent,
CES and the Company have agreed that each of the payments set forth in Sections 11.03(b),
11.03(c) and
11.03(e) shall
be the sole and exclusive remedy of each Party against the other Party and their
respective Affiliates.  ACCORDINGLY, THE PARTIES HEREBY ACKNOWLEDGE
THAT (1) THE EXTENT OF DAMAGES TO THE NON-TERMINATING PARTY CAUSED BY THE
FAILURE OF THIS TRANSACTION TO BE CONSUMMATED WOULD BE IMPOSSIBLE OR EXTREMELY
DIFFICULT TO ASCERTAIN, (2) THE AMOUNT OF THE LIQUIDATED DAMAGES PROVIDED FOR IN
EACH OF SECTIONS
11.03(b) AND11.03(c) ARE FAIR AND REASONABLE ESTIMATES OF SUCH DAMAGES UNDER THE
CIRCUMSTANCES AND (3) RECEIPT OF SUCH LIQUIDATED DAMAGES BY THE NON-TERMINATING
PARTY DOES NOT CONSTITUTE A PENALTY.  THE PARTIES HEREBY FOREVER WAIVE
AND AGREE TO FOREGO TO THE FULLEST EXTENT UNDER APPLICABLE LAW ANY AND ALL
RIGHTS THEY HAVE OR IN THE FUTURE MAY HAVE TO BRING ANY ACTION OR PROCEEDING
DISPUTING OR OTHERWISE OBJECTING TO ANY OR ALL OF THE FOREGOING PROVISIONS OF
THIS SECTION 11.03.




(e)  (i)
Parent will pay to the Company a fee equal to $8,100,000 if (A) this
Agreement is terminated pursuant to Section
11.01(b),Section 11.01(c)
or Section
11.01(h) primarily as a result of the failure to satisfy the condition
set forth in Section
9.02(f)(ii) or (B) this Agreement is terminated pursuant to Section 10.01(b),
Section
10.01(c), or Section 10.01(h),
primarily as a result of the failure to satisfy the conditions set forth in
Section
9.02(a),Section
9.02(c), or Section 9.02(d)
arising out of  Parent's assertion that a Cap Rock Material Adverse
Effect has occurred as a result of a change in Law issued by, administered by or
relating to the authority or responsibilities of the PUCT, and (ii)  the
Company will pay to Parent a fee equal to $8,100,000 if this Agreement is
terminated pursuant to Section 
11.01(b) or Section
11.01(f).  Under no circumstances shall any Party be entitled
to receive a payment pursuant to this Section 11.07(e) and
a payment pursuant to Section 11.07(b)or
Section
11.07(c), as the case may be.






65


(f)  All
payments under this Section 11.03 shall
be from payor to payee by wire transfer of immediately available funds to a bank
account in the United States of America designated in writing by payee not later
than three (3) Business Days following payor’s receipt of such account
designation from payee.




(g)  No amount
shall be due by the Company or Parent under Section 11.03(b) or
11.03(c) if
this Agreement is terminated prior to the Closing and the Closing does not occur
primarily because a representation and warranty of a Party that was true and
correct on the date of this Agreement became not true and correct thereafter not
as a result of a breach of covenant by such Party.




ARTICLE
XII




MISCELLANEOUS
PROVISIONS




SECTION
12.01.  Amendment and
Modification.  This Agreement may be amended, modified, or
supplemented only by written agreement of the Parties.




SECTION
12.02.  Waiver of Compliance;
Consents.  Except as otherwise provided in this Agreement, any
failure of any Party to comply with any obligation, covenant, agreement, or
condition herein may be waived by the Party entitled to the benefits thereof
only by a written instrument signed by the Party granting such waiver, but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement, or condition will not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure.




SECTION
12.03.  Notices.  All
notices and other communications hereunder will be in writing and will be deemed
given if delivered personally or by facsimile transmission, or mailed by
overnight courier or certified mail (return receipt requested), postage prepaid,
to the Party being notified at such Party’s address indicated below (or at such
other address for a Party as is specified by like notice; provided that notices
of a change of address will be effective only upon receipt
thereof):




(a)  If to CES
or the Company, to:


Cap Rock
Holding Corporation


Attn:
Melissa Davis


500 West
Wall, Suite 200


Midland,
TX 79701


Fax:
(432) 684-0334






66




with a
copy to:




Cravath,
Swaine & Moore LLP


Attn:      Richard
Hall, Esq.


Worldwide
Plaza


825
Eighth Avenue


New York,
NY 10019


Fax:
(212) 474-3700




(b)  if to
Parent, to:




PNM
Resources, Inc.


Attn:      
General Counsel


414
Silver Street, SW


Albuquerque,
New Mexico 87102


Fax:
(505) 241-2368




with a
copy to:




Troutman
Sanders LLP


Attn:   Terry
C. Bridges


Richard
H. Brody


600
Peachtree Street, NE


Suite
5200


Atlanta,
GA 30308-2216


Fax:
(404) 962-6514




SECTION
12.04.  Assignment.  This
Agreement and all of the provisions hereof will be binding upon and inure to the
benefit of the Parties and their respective successors and permitted assigns,
but neither this Agreement nor any of the rights, interests, or obligations
hereunder may be assigned by any Party, without the prior written consent of the
other Parties, nor is this Agreement intended to confer upon any other Person
except the Parties any rights or remedies hereunder.  No provision of
this Agreement creates any third party beneficiary rights in any employee or
former employee of the Company (including any beneficiary or dependent thereof)
in respect of continued employment or resumed employment, and no provision of
this Agreement creates any rights in any such Persons in respect of any benefits
that may be provided, directly or indirectly, under any employee benefit plan or
arrangement.




SECTION
12.05.  Governing
Law.  This Agreement is governed by and construed in accordance
with the laws of the State of Delaware (regardless of the laws that might
otherwise govern under applicable principles of conflicts of law) as to all
matters, including but not limited to matters of validity, construction, effect,
performance and remedies.  THE PARTIES HERETO AGREE THAT VENUE IN ANY
AND ALL ACTIONS AND PROCEEDINGS RELATED TO THE SUBJECT MATTER OF THIS AGREEMENT
SHALL BE IN THE STATE AND FEDERAL COURTS IN AND FOR THE STATE OF DELAWARE WHICH
COURTS SHALL HAVE EXCLUSIVE JURISDICTION FOR SUCH PURPOSE, AND THE PARTIES
HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND
IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY
SUCH ACTION OR PROCEEDING.  SERVICE OF PROCESS MAY BE MADE IN ANY
MANNER RECOGNIZED BY SUCH COURTS.






67


SECTION
12.06.  Severability.  Any
term or provision of this Agreement that is invalid or unenforceable in any
situation in any jurisdiction will not affect the validity or enforceability of
the remaining terms and provisions hereof or the validity or enforceability of
the offending term or provision in any other situation or in any other
jurisdiction.




SECTION
12.07.  Entire
Agreement.  This Agreement will be a valid and binding
agreement of the Parties only if and when it is fully executed and delivered by
the Parties, and until such execution and delivery no legal obligation will be
created by virtue hereof.  This Agreement, together with the Schedules
and Exhibits hereto and thereto and the certificates and instruments delivered
under or in accordance herewith or therewith, embody the entire agreement and
understanding of the Parties hereto in respect of the
Transactions.  This Agreement supersedes all prior agreements and
understandings between the Parties with respect to such
transactions.




SECTION
12.08.  Delivery.  This
Agreement, and any certificates and instruments delivered under or in accordance
herewith, may be executed in multiple counterparts (each of which will be deemed
an original, but all of which together will constitute one and the same
instrument), and may be delivered by facsimile transmission, with originals to
follow by overnight courier or certified mail (return receipt
requested).




SECTION
12.09.  Waiver of Jury
Trial.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
ANCILLARY AGREEMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.




[Signature
Page Follows]





68





IN
WITNESS WHEREOF, the Parties have caused this agreement to be signed by their
respective duly authorized officers as of the date first above
written.




PNM
RESOURCES, INC, as Parent








By: /s/ Jeffry E.
Sterba


Name:  Jeffry E.
Sterba


Title:     President
&
CEO





PNM
MERGER SUB LLC, as Sub





By: PNM RESOURCES, INC., as
its member





By:    /s/
Charles E.
Eldred


Name:   Charles
E. Eldred


Title:  Executive
Vice President & Chief Financial Officer





CONTINENTAL
ENERGY SYSTEMS LLC








By:


Name:


Title:








By:


Name:


Title:








CAP
ROCK HOLDING CORPORATION, as the Company








By:


Name:


Title:








[Signature Page to Merger
Agreement]